Tensions that arose with indigenous groups during the Harper years, stemmed primarily from the ill-defined contours of Aboriginal sovereignty. The Attawapiskat band’s financial mismanagement and the Federal Government’s response perfectly encapsulate the challenges felt on both sides of the issue. The band’s leadership spent nearly $90 million in Federal funds between 2006 and 2012, with little to no paper trail to show how the funds were spent. In response, the Government imposed a financial overseer on the Band in a heavy handed and poorly executed fashion. This move sparked a venomous verbal lashing from both the Opposition and the Assembly of First Nations.
A primary focus for the Conservative’s First-Nations policy (after winning a majority in 2011) dealt with the financial accountability and transparency of Canada’s Aboriginal governments. The center-piece of this agenda was the First Nations Financial Transparency Act; however after its passage the ensuing controversy caused the Liberals to abandon the law’s application upon taking office. The other piece of legislation aimed at furthering this policy agenda was the Extractive Sector Transparency Measures Act (ESTMA). ESTMA is somewhat distinct from the other accountability measures brought in by the previous government. This is because the law was passed in parallel to those already in place in the United States and European Union. The law’s passage constitutes Canada’s fulfillment of the international commitment it made to establish “a reporting systems that contributes to raising global transparency standards in the extractive industry.”
On June 1st, 2017 less than a year from now, the ESTMA provisions dealing with payments made to First-Nations by the extractive industry (mining and energy) will come into force. Under the terms of the Act, any payments over $100,000 made by an extractive company to any level of Government must be reported to the appropriate federal authority. These rules cover the cumulative total of both monetary and in-kind payments made over the course of a fiscal year. Disclosure rules will apply to extractive entities engaged in the commercial development of oil, gas, and minerals. According to the National Resources Canada “an entity will be required to report:
- Only if it is listed on a stock exchange in Canada, or
- Has a place of business in Canada, does business in Canada or has assets in Canada, and
- Based on its consolidated financial statements, for at least one of its two most recent financial years, has at least two of the following:
- CDN$20 million in assets
- CDN$40 million in revenue
- an average of 250 employees”
These requirements will shed new light on the Impact Benefit Agreements (IBAs) established between First-Nations groups and energy companies, which up until now have been kept private.
IBAs have been used in Canada since the early 1990s, and are now standard in Canada’s extractive industries. An IBA‘s intent is provide Indigenous communities affected by resource development with benefits to offset the impacts of development. These benefits take the form of everything from social development and monetary compensation to funding for environmental studies. The income First-Nations receive through some IBAs can dwarf a band’s other revenue streams in comparison; however, there is considerable variability between bands. In return, impacted First-Nations communities pledge their support for a development project, and acknowledge certain legal requirements have been met by the proponent (such as those associated with the duty to consult).
First-Nations leaders and extractive industry representatives have already expressed their misgivings about the new disclosure rules. Some high profile critics that have already weighed include Clarence Louie the chief of the Osoyoos Indian Band, Pierre Gratton the President of the Mining Association of Canada, and even the Canadian Association of Petroleum Producers has expressed its concerns.
For Ottawa to impose disclosure requirements on what is essentially a private agreement between two consenting parties, interferes with First-Nations’ right to freely enter into private contracts. The issue is further complicated by the fact that First-Nations possess a degree of sovereignty (albeit limited in nature) not afforded to other Canadians. The one caveat to this point is that ESTMA only requires disclosure for large resource companies making payments over the $100,000 threshold. It does not directly apply to the IBAs or First-Nations.
During the consultations for ESTMA with First-Nations, federal officials noted a recurrent concern that was raised by stakeholders. Indigenous groups fear that if their IBA compensation is made public, it could politicize their federal funding. This is an especially salient point given the unwelcomed media attention Indigenous leaders received over the First Nations Financial Transparency Act salary disclosures. The media and public widely condemned the exuberant salaries paid to some Chiefs and band councillors. If the compensation paid to Indigenous governments is published without providing sufficient context, the Federal Government runs the risk that payments could be misconstrued by the public. The public’s misinterpretation of these figures can breed enmity, and promote a distorted view of First-Nations financial resources. Even though Indigenous groups that do benefit are simply sharing in the wealth extracted from their traditional lands, and being compensated for the development’s negative impacts on their communities.
More to the point, Canadian energy firms have invested considerable time and resources building relationships with their Indigenous partners. For example, as of 2013 Aboriginal companies have earned almost $3 billion in revenues as partners with Suncor Energy, and more recently Fort McKay First-Nation announced it will invest $350 million into a Suncor operated tank farm. Thus, implementing stringent reporting requirements come 2017 carries the risk of inciting conflict with First-Nations groups. This conflict would come at an inopportune time for the energy industry, which is currently seeking buy in from these same Indigenous groups for pipelines, LNG terminals, and other energy projects. With so much at stake, industry can ill afford to burn the bridges it has built with these Indigenous communities.
Conversely, a recent paper from the McDonald-Laurier Institute surveyed the literature and presents arguments for the potential upsides to ESTMA. According to the paper, the principal benefit of disclosure to First-Nations would be that it relieves some of the information asymmetry. If First-Nations are able to compare an energy company’s offerings against their peers, bands will be better informed on what constitutes a “fair deal”. The spin off benefit for energy firms is that, by enhancing transparency around IBAs, it also informs investors of the potential financial implications associated with securing First-Nations support (this is assuming there is willingness to negotiate).
The complexity of this issue, and the simplicity of the solution provided by ESTMA, will no doubt trigger push back from most corners. To ensure effective implementation, the Liberals must re-engage with First-Nations and industry on the roll-out of this bill. The Government will need to provide context for all published payments. This information will help the media and their consumers understand the true purpose of the compensation. Only these steps will help the Government avoid a politically explosive situation.
Read more insightful analysis from Maxwell Harrison here