CANADA

THE ROCK REBORN?

NEWFOUNDLANDERS ARE LOOKING TO THE HIBERNIA OILFIELD TO IMPROVE THE PROVINCE’S ECONOMIC OUTLOOK

JOHN DeMONT January 7 1991
CANADA

THE ROCK REBORN?

NEWFOUNDLANDERS ARE LOOKING TO THE HIBERNIA OILFIELD TO IMPROVE THE PROVINCE’S ECONOMIC OUTLOOK

JOHN DeMONT January 7 1991

THE ROCK REBORN?

CANADA

NEWFOUNDLANDERS ARE LOOKING TO THE HIBERNIA OILFIELD TO IMPROVE THE PROVINCE’S ECONOMIC OUTLOOK

Nestled deep on the rugged shoreline of Newfoundland’s Placentia Bay, the fishing village of Arnold’s Cove is being reborn. Fifteen years ago, the community was fighting for its life after the neighboring Come-By-Chance oil refinery closed down. The closure forced a quarter of Arnold’s Cove’s 1,700 residents to leave in search of work. Now, people are flocking back to the village, which has reemerged as one of the most prosperous in the province.

The refinery, reopened under new owners two years ago, is busy turning foreign crude oil into gasoline. At the same time, the village fishprocessing plant, owned by National Sea Products Ltd., is operating at full capacity.

And nearby, preliminary work has begun at the site where a huge, concrete base for an offshore production platform will be built for the Hibernia oilfield. Construction of the $ 1.2-billion platform is expected to create as many as 1,500 jobs in the area. Declared Arnold’s Cove Mayor Thomas Osbourne:

“The future looks bright.”

And that sentiment is spreading rapidly in Newfoundland, the province that has long been identified as the poorest in Canada.

Despite a crisis in the traditional Atlantic fishery, Newfoundlanders are again looking to the sea to refloat their economy. Currently, however, the anticipated wealth lies in the oil buried deep beneath the Grand Banks off New-

foundland’s southeast coast. Forecasters predict that developing the first offshore oilfield at Hibernia will create 6,000 jobs during peak periods of the construction phase and 1,100 jobs for the 18-year life of the field. According to Newfoundland’s Liberal premier, Clyde Wells, that expected oil boom will lift the province’s private sector to new levels of prosperity. Said Wells during an interview with Maclean’s: “The economy is ready to take off.” But how much of the anticipated new wealth will find its way into the provincial treasury remains in doubt. And Wells said that his indebted government is unlikely to be able to offer much assistance to any Newfoundlanders who fail to find a place in the expanding oil and construction industries.

Still, Newfoundland’s residents express rising optimism about their economic outlook. According to one recent poll by Halifax-based Omnifacts Research Ltd., the proportion of Newfoundlanders who expect their economy to improve over the next year—despite the recession gripping Central Canada—has climbed to 38 per cent from 20 per cent six months

earlier. That optimism is shared by many economists, who predict that the province’s perennially struggling economy will be the most vibrant in the country next year. Last month, the Bank of Montreal, for one, forecast that Newfoundland’s gross domestic prod-

uct—the value of all goods and services produced in the province—will climb by 2.9 per cent during 1991, far ahead of the virtually flat growth (0.1 per cent) that the bank forecasts for the rest of the country.

Until recently, optimism was rare in Newfoundland.

And in fact, the province’s economy remains racked with painful problems. The most pressing is an unemployment rate that, at a 17.7per-cent annual rate in November, was nearly double the 9.1-per-cent national rate. Most of the layoffs, which have left 40,000 Newfoundlanders out of work, have taken place in the deeply troubled fishery. That industry received an additional setback last month when federal officials further reduced the amount of northern cod that fishermen will be allowed to catch in 1991. In a measure directed at protecting falling cod stocks, officials cut the Atlantic catch quota by 7,000 tons to 190,000 tons.

At the same time, the province’s pulp-and-paper mills have also cut jobs in response to falling demand for their products. As well, Newfoundland’s accumulated debt of $4.5 billion has forced the government to curtail spending at a time when Wells says he would prefer to increase expenditures to stimulate the economy. Added the premier: “Our ability to deal with the economic impact of the recession is diminished.”

And there are more deeply rooted problems that threaten to hinder the province’s return to prosperity. A 1986 government-appointed Royal Commission on Employment, chaired by economist Douglas House, concluded that Newfoundland’s high rate of illiteracy and poor education system were at the root of much of its economic problems. At the same time, some economists and business leaders say that decades of dependence upon unemployment insurance and government transfer payments have spawned a welfare mentality among some Newfoundlanders. Added Victor Young, chairman of Fishery Products International Ltd., the giant St. John’s-based fishing company: “Our biggest challenge is whether or not we will be able to change these attitudes.”

But, for many Newfoundlanders, the province’s prospects changed dramatically with the Sept. 14 signing of an agreement that commits the federal government, Newfoundland and a consortium of private oil companies to spend $5.2 billion developing the Hibernia oilfield, 200 miles southeast of St. John’s. Under the accord, Ottawa promised to contribute 25 per cent of the construction costs up to a ceiling of

$1.04 billion, as well as to guarantee loans of $1.66 billion to the group of oil companies, led by Mobil Canada Inc., that will develop the field.

As well as jobs, the enterprise is expected to provide other benefits. Officials at Newfoundland Offshore Development Corp., the company that is overseeing the design and construction near Arnold’s Cove of the massive platform concrete base, say that they plan to award the first of more than 400 subcontracts within the next few weeks. As a result, noted Maurice Mandale, senior economist of the Halifax-based Atlantic Provinces Economic Council, the Hibernia project will boost the construction industry and the commercial services sector.

But Wells says that he is still unhappy with some of the provisions in the September agree-

ment that injected life into the Hibernia project after more than two decades of inconclusive negotiations. Wells, a lawyer who led his party to a general election victory in 1989, defeating a 17-year-old Conservative dynasty, points to terms in the federal-provincial agreement that will reduce equalization payments to the province in step with any provincial royalties from oil production. Declared the premier: “In financial terms, the project does little for the province.” Still, he acknowledged, “In economic terms, it is building the strength of individuals and the confidence of a province as a whole. For

every dollar’s worth of equalization we give back to the federal government, we gain a dollar’s worth of dignity, self-respect and independence.”

And despite his doubts about the terms, the intense, ruddy-cheeked premier says that he will pursue even larger megaprojects for his province. In one case, Wells says that he has overcome personal differences with Quebec’s Premier Robert Bourassa over the failed Meech Lake constitutional accord in order to make progress towards an agreement on a $13-biUion project to develop two new hydroelectric power sites in Labrador. Barring unexpected difficulties, Wells told Maclean’s, “There is a good probability that we would have a deal.”

In fact, both provinces have shown a willingness to compromise since negotiations about the project resumed last January. Newfoundland has reportedly dropped its long-standing insistence that any new power development in Labrador be linked to a renegotiation of the controversial 1969 contract that allows Hydro Quebec to buy most of the power generated from an existing dam at Churchill Falls at bargain-basement prices. Hydro Quebec, meanwhile, has told officials in Newfoundland that it is prepared to pay higher amounts for its share of the output from any new power plants. Said Cyril Abery, chairman of Newfoundland and Labrador Hydro: “Quebec understands that we intend to get the best price for the power.”

Those ambitious undertakings, however, will do little to release Newfoundland’s 580,000 residents from their reliance on fishing, forestry and mining, and energy megaprojects. To that end, Wells’s government has hired House to lead the Economic Recovery Commission, directed at diversifying the province’s economy. The commission, says House, has supplied expertise and support programs for Newfoundland small businesses, and even acted directly to put together business deals between outside investors and local firms. Declared House: “There’s a new dynamism in Newfoundland small business.”

But embedded problems remain. Provincial government cost-cutting has forced the postponement of promised improvements in health care and education, despite Newfoundland’s record of having the highest illiteracy rate of any of the provinces. In many communities that are remote from the developing oil boom, unemployment remains high—in some villages, seasonal unemployment among working-age people can be as high as 80 per cent. Declared Marguerite Elliott, co-ordinator of food banks for Newfoundland: “In many places, things are as bad as they were during the Great Depression.”

At the same time, critics, such as Cabot Martin, president of the Newfoundland Inshore Fisheries Association, say that Wells is focusing too much attention on megaprojects and diversifying the economy, and too little on rebuilding the province’s embattled fishery. “You can’t build economic recovery with policies which ignore the backbone of the economy,” Martin remarked. Even in areas that are expected to benefit the most from the offshore oil riches, some Newfoundlanders are doubtful that prosperity is really around the corner. Noted Alberto Wareham, owner of a grocery and hardware store in Arnold’s Cove: “Let’s just say we are always a bit skeptical around here when people start saying that we are going to be rich.”

Indeed, even the most optimistic of the province’s residents think that it will take more than a single oilfield and a few enterprising small businesses to break Newfoundland’s cycle of poverty. But in places like Arnold’s Cove, renewed economic activity is at least beginning to erase some of the most painful memories of the past.

JOHN DeMONT

St. John's