Last week, the government signed an agreement which it says will generate roughly $2.6 billion in taxes and royalties from the new mine in Labrador west.
But Ball wanted to know what will happen if the price of iron ore shoots up dramatically in the coming years.
“In the mid-1980s, 30 years ago, the price of iron ore was $11 a ton. Thirty years later, it is averaging around $100 a ton,” Ball said. “I ask the premier: have you made provisions in this agreement so that there will be potential for the people of Newfoundland and Labrador to have increased benefits if we continue to see a rise in iron ore pricing?”
Natural Resources Minister Derrick Dalley stepped up to say the government is quite proud of the benefits agreement they hammered out.
“Tied into that, Mr. Speaker, we have an aggressive tax regime here, royalties that are dependent on the companies in terms of production, sales and so on,” Dalley said. “We have also agreed within this year a very significant tax program, Mr. Speaker, where 90 per cent of the corporate taxes will be paid right here in Newfoundland and Labrador, and that is a significant increase in any other agreements that we have had.”
But Ball specifically wanted to know about an “escalator” in case iron prices increase by a factor of 10 over the next few decades.
Dalley again said increases in iron ore prices are tied in with the taxes the company pays.
He made the same point again speaking to reporters outside the House of Assembly after question period. The most famous lack of an escalator clause, he said, is in the case of the Churchill Falls hydro project, where the province gets paid a fixed price no matter how much the price of energy goes up.
In the case of Kami, though, he said the province gets a percentage tax rate, so the government gets a proportional cut of the extra money coming in if prices go up.
“It is tied to a tax, and a tax is based on production volume, prices, profitability,” Dalley said. “All of that will end up being the benefit from the resource and the development of the resource that will come back to the provincial treasury.”
When Ball came out to talk to journalists after question period, he acknowledged that the tax regime does mean that government revenues from the Kami Mine will go up as prices go up. He said when he was talking about an “escalator provision” what he really meant was some other way for the government to get the most out of the mine deal.
Ball mentioned the possibility of secondary processing for the ore as a requirement for building the mine.
“All I'm saying here right now is this agreement doesn't make provision — other than the taxation piece — for Newfoundlanders and Labradorians to get maximum benefit for the resources that we have,” he said.