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Report of the Terra Nova Development Project Environmental Assessment Panel
3.0 Socio-Economic Impacts of the Project
The Terra Nova field will be developed at a capital cost of $2.4 billion, of which $1.6 billion will be expended in the preproduction phase. A development of that magnitude should provide a major economic stimulus in a small province. Whether it does so in fact will depend, in part, upon net revenues realized by the Province of Newfoundland from royalties and taxes; in part, upon policies and strategies developed and implemented by the Proponents and their contractors; and, in part, upon the success of Newfoundland business in a globally competitive bidding environment. The Panel heard repeated expressions of concern in respect of royalties, taxes and concessions that may have been made to the Proponents, but those matters fall outside the scope of the Panel's terms of reference. Among the issues that do come within its purview, those of greatest apparent interest to the public-at-large were job creation and employment opportunities. Those were brought into sharp focus and kept constantly before the Panel by two individuals who had clearly worked long and assiduously to analyze the benefits section of the application documents. The fears they expressed, and which were echoed by a number of other participants in the hearings process, were that the concept of global competitiveness would be used as an excuse to limit local employment and benefits and thus circumvent the spirit and intent of the Atlantic Accord. The absence from the development plan of a provision for training was seen as a partial justification for such fears. In respect of the community's capacity to absorb the industrial activity to be generated by the Project, neither the Proponents nor the public anticipated any negative impacts.
3.2 The Atlantic Accord
The Atlantic Accord is a memorandum of agreement between the Government of Canada and the Government of Newfoundland and Labrador on offshore oil and gas resource management and revenue sharing. It was signed by the Prime Minister of Canada, the Premier of Newfoundland and Labrador, and appropriate ministers of both governments on February 11, 1985.
The Atlantic Accord was and is a matter of paramount importance to the Province of Newfoundland. It offered an amicable political solution to a contentious jurisdictional problem by recognizing the right of the Province to be the principle beneficiary of oil and gas resources off its shores, within a strong and united Canada. It recognized the equality of both governments in the management of the resources and sought to ensure that the pace and manner of development would optimize the social and economic benefits to Canada as a whole, and to the Province in particular. The Accord Acts translated the provisions of the Atlantic Accord into legislation, enacted by the Parliament of Canada and the Legislature of Newfoundland and Labrador. Both governments established the Board to administer the Accord Acts and other relevant legislation.
The Accord Acts give the Board a mandate to approve development plans and to authorize work pertaining to offshore development, subject, in most cases, to its prior approval of a Canada-Newfoundland benefits plan. The Accord Acts also provide that residents of Newfoundland be given first consideration for training and employment in respect of such development. A clause in the Canadian Charter of Rights and Freedoms permits this local preference policy as long as the employment rate in a province is below the national employment rate. Also, the Accord Acts require that first consideration be given to services provided from within the Province and to goods manufactured in the Province, where those goods and services are competitive in terms of fair market price, quality and delivery. Furthermore, the Accord Acts provide that the development plan should include provision for expenditures on research and development, and education and training.
The Board's Development Application Guidelines explain how the Accord Acts are to be applied in both the preproduction and operations phases of any developmental activity. The document provides guidance to proponents in preparing their benefits plan, noting the statutory requirements of full and fair opportunity and just consideration in procurement and employment. The guidelines advise proponents to reflect their commitment to these principles through the policies and procedures governing project management; supplier development, procurement and contracting; employment and training; and, research and development. There are, as well, general requirements for consultation with the Board during the preparation of the benefits plan and for monitoring and reporting during the life of a project.
3.3 Employment Opportunities
The Terra Nova Development preproduction phase is planned to commence in 1998 and will last approximately two to three years. The operations phase will commence in the year 2001 and last approximately 15 to 18 years. Originally the labour forecast for the preproduction phase was 8.5 million work hours exclusive of drilling. Subsequently, the estimate was reduced to a range of 4.7 million to 6.2 million hours exclusive of drilling. Converted to 40-hour work weeks, this amounts to 2,300 to 3,100 person years for the construction of the FPSO and topsides, hook-up and assembly, engineering, management and other miscellaneous activities. The Proponents attribute the reductions from their earlier estimates to a combination of increased experience with floating production systems, cost reduction initiatives, and new management strategies. Clearly, Terra Nova is not another Hibernia, which, according to the Proponents, provided over 30 million hours, that is 15,000 person years of employment in its preproduction phase. Nevertheless, 3,000 or more person years of employment in the preproduction phase of the Terra Nova Development is by no means insignificant. How much of it will accrue to Canadians in general, and to Newfoundlanders and Labradorians in particular, remains to be seen.
The Proponents have informed the Panel that the FPSO, or at least its basic steel hull, and in all probability the shuttle tankers as well, will be built outside Canada owing to the incapacity of Canadian yards to accommodate vessels of the size required. Nevertheless, the basic hulls may be brought to Canadian yards for completion and, in the case of the FPSO, for topsides construction and assembly. The components of the sub-sea system are of specialized design and manufacture, and will be provided by foreign manufacturers. The semi-submersible drill rigs will be leased or purchased, also from external sources. It is clear that opportunities for employment in Newfoundland in respect of many of the 3,000 person years in the preproduction phase are already foreclosed.
While the potential consequence of the Proponents' development plan and the realities of the globally competitive bidding process may result in virtually all the remaining preproduction work being done elsewhere, with the consequent loss of several hundred jobs, the Panel was greatly encouraged by the Proponents' repeated assurances that every reasonable effort would be made to obviate such a deplorable eventuality. However, the many submissions made to it based on experiences from the Hibernia project, leaves the Panel concerned that the spirit and intent of the Atlantic Accord are sometimes overlooked.
The operations phase of the Project will produce 400 to 500 long-term jobs in Newfoundland over the life of the field. Most of these jobs will be associated with the FPSO, tanker operations, marine and air support, and onshore activities. The production platform jobs will include deck hands, seamen, control room and crane operators, technicians, supervisors, radio operators, nurses, cooks, cleaning staff, and others. A number of people will be employed in shore support as office workers or as direct employees of warehouse and shore-based facilities. Some jobs will also be created to provide vessel and helicopter support to the Project.
Drilling will take place over a 12-year period overlapping the preproduction and operations phases. The labour requirements for drilling is estimated at 4.5 million hours, that is, approximately 2,200 person years.
3.4 Global Competition
The very concept of global competition engenders a sense of unease in some unions and workers as was apparent in certain submissions made to the Panel. Some see competitive bidding as a potential obstacle to their obtaining work on the Project and expressed the belief that a newly emergent industry requires special protection, but there are others who fully accept the proposition that Newfoundland must be globally competitive as a necessary precondition for its development.
The Newfoundland and Labrador Oil Development Allied Trades Council (ODC), for example, expressed the view that Newfoundland workers need not fear any competitor provided that wages alone were not the determinant consideration. If the Proponents restricted the competition to countries paying "decent" wages; if productivity, quality of work and safety were considered; and if technology transfer and skills development were accepted as a legitimate incremental cost of doing business under provisions of the Atlantic Accord, then they believe Newfoundland workers could compete successfully with workers anywhere in the world, and the Province would maximize the benefits to be derived from offshore development. They cited the case of Norway as an example of what sound government policies could achieve.
This theme was also addressed by other participants at the hearings who cited the example of work performed for the Hibernia project in Korea. Not only did that work require costly corrective measures, but, they maintained, safety standards were compromised. In this case, it was false economy to have the work done in a jurisdiction where the exacting standards for quality assurance and quality control demanded in Canada were not enforced.
The Newfoundland Ocean Industries Association (NOIA) viewed global competition as an opportunity rather than as an obstacle. In their view, the Hibernia project had already set new standards and enabled local industry to strengthen its ability to compete in national and international oil and gas markets. They saw the Terra Nova Development as the beginning of a new era, where experiences with new technologies and new systems would increase Newfoundland business potential to compete in petroleum projects anywhere in the world. NOIA expressed no negative sentiments regarding global competition, and their presentation exuded optimism that the work would be done in Newfoundland.
From the Proponents' perspective, international competitive bidding is necessary to ensure the viability of the Project. Oil that is produced from the Project will have to compete for markets with similar crudes from other producing regions of the world. As well, the Proponents maintained that international competitive bidding will help to ensure the development of a world-class industry in Newfoundland.
The Panel understands the nature of public concern. Simply put, if local businesses are not successful in bidding for Terra Nova Development work, the provisions of the Accord Acts with regard to Newfoundland benefits are meaningless.
The Panel notes, however, that international competitive bidding for goods and services for Newfoundland offshore developments did not originate with the Terra Nova Development. Indeed, it has long been a cornerstone of provincial government petroleum policy, first made public in a White Paper in May 1977, then included in theNewfoundland and Labrador Petroleum Regulationspromulgated in October of the same year. Language similar to that contained in those regulations is found in the Atlantic Accord, in the Accord Acts and in Premier Tobin's letter of August 5, 1996, confirming that agreement in principle had been reached regarding the development of the Terra Nova field.
While such a policy may appear unfair to some, and particularly to those who are currently unemployed or struggling to maintain a business, the Panel must concede that, looking at the long-term, it is a policy that makes economic sense. The present economy of Newfoundland and Labrador is heavily dependent on the successful marketing of the products of its natural resources sector. At the same time, the small domestic market, the distance from large population centres and high transportation costs, inhibit large-scale manufacturing. In this context, one strategy for economic diversification is to take every possible opportunity to develop a highly trained labour force whose skills are transferable to other industrial activities, and a business community with the expertise and the determination to market those skills in resource development service in other parts of Canada and throughout the world. But if this is to be successful, the skills developed in Newfoundland, the quality of work and the price at which the products can be delivered must be at least equal to, but preferably better than, that offered by competitors. High quality, international standards, and prices are the keys to external contracts. The Panel does not underrate the fears of many workers who have spent most of their working lives traversing Canada and the world looking for employment. Nevertheless, the Panel believes that a degree of optimism is now justified, predicated upon the technical skills and the high productivity of Newfoundland workers who brought the Hibernia project to completion on time; and upon the fact that the Proponents themselves, as well as NOIA, the ODC and others, recognize that the new technologies and the new businesses that were developed in response to the Hibernia project can be further enhanced and made fully capable of meeting the challenge of the Terra Nova Development. Further, the Panel believes that in honouring the spirit of the Atlantic Accord, the Proponents can make the Project a significant step towards implementation of the above-mentioned development strategy.
Even before Hibernia, the foundations of a strong ocean industry sector had been laid. Federal and provincial governments and Memorial University of Newfoundland had recognized cold ocean engineering and associated sciences and technologies as important areas for development. Institutions such as the Newfoundland Ocean Research and Development Corporation (NORDCO); the Centre for Cold Oceans Resources Engineering (C-CORE); the Marine Institute; programs in naval architecture and engineering technologies; the Institute of Marine Dynamics; and, the Cow Head rig-repair facility were created. Through these and spin-off enterprises in the private sector, particularly in oceans and communications technology, Newfoundland and Labrador is recognized internationally for its cold oceans research, communications innovations, and ship and oil rig inspection, repair and maintenance. The same commitment to purpose can be brought to bear in the fabrication and construction sector, and in the development of support industries for the oil and gas sector. In this regard, the Panel is very pleased to note the commitments of the Proponents to assist local businesses to upgrade their project management, procurement and quality control systems to international standards. If Newfoundland businesses are prepared to act upon this commitment fully and to take full advantage of falling trade barriers and advances in communications, and to build upon the solid foundations already laid, they will be able to build a vibrant industry that will bring the promise of the Atlantic Accord to full realization.
The Panel recommends that the Proponents use their best efforts to ensure that local fabrication yards have the information and support necessary to take advantage of opportunities to upgrade project management, procurement and quality control systems to the highest recognized international standards.
The Panel nevertheless believes that a line must be drawn between good prices that will permit the Proponents to be competitive in the international oil market, on the one hand, and on the other, the acceptance of bids simply because they are the lowest. Issues of quality assurance and of quality control must be most carefully considered. The Proponents must be fully satisfied that every successful bidder is totally cognizant of the extremely hazardous environment in which their structures must function and of the stringent requirements for personnel and environmental safety that Canadian law demands. Post facto inspections of work after it has arrived in this country are not sufficient to give the assurance of its long-term integrity. Given the experience of the Hibernia project, the Panel believes that the Board should seriously consider whether any construction in Korean yards, for example, should be approved in the future. In the interests of safety, global competition clearly should be restricted to those countries where quality assurance and quality control are of the same high standards that apply in Canada. The Panel has confidence that the Proponents share its concern for the long-term integrity of structures, and will make safety a preponderant consideration that outweighs price in its decisions on infrastructure sourcing.
The Panel recommends that the Board approve construction of project facilities in foreign countries only if the quality assurance and quality control of that country are equal to or better than in Canada, and also where the means for monitoring and control of quality are in place.
The Panel believes that Newfoundland yards must be involved in the Terra Nova
Development, and not merely for the sake of immediate employment, but as a step towards building an industry that will secure larger local benefits from future offshore projects. The Terra Nova Development must encourage technology transfer, business capability and worker skills. The latter may be achievable through well designed training programs and through the encouragement of the maximum number of apprentices that union constitutions permit. A practical application of the Proponents' commitment to the concept may well emerge in the area of sub-sea systems, which will be a significant part of the Project and, in all probability, of all future offshore oil and gas projects. The Panel expects the Proponents to use their best efforts to encourage, or require, as an aspect of the bidding process, that the successful international suppliers of sub-sea systems set up assembly and fabrication facilities in the Province, using local labour trained to produce quality products. This implies that the Proponents ensure that residents of the Province are not excluded by unreasonable or unnecessary qualification requirements or other artificial barriers. Global competition would obviously be more palatable to the people of the Province if the companies receiving the contracts carried out their work in Newfoundland.
The Panel recommends that the Proponents be required to use their best efforts and bidding processes to cause the successful international supplier of sub-sea systems to set up assembly and fabrication facilities in Newfoundland, using local labour trained to produce quality products.
The Panel recommends that the Board monitor and review the qualifications required for all jobs to ensure that residents of the Province are not excluded by unreasonable or unnecessary qualification requirements or other artificial barriers, and that the maximum number of apprenticeships permitted by union constitutions are filled by local people.
The International Union of Operating Engineers drew the Panel's attention to the seemingly anomalous case of a project with a substantial sub-sea component, and yet very little requirement for divers. The Proponents indicate that sub-sea facilities will be designed to accept remote operating vehicles (ROVs), use of which will make diver intervention unnecessary.
Neither the Union nor the Panel finds it easy to contemplate a situation in which ROVs can be used to install and service major sub-sea installations over a period of almost 20 years without diver support. While ROVs can certainly be used alone for some types of observation, inspection, maintenance and repair, they are often used in combination with divers. In short, the Panel is not convinced that robotics technology has yet totally replaced human resources in sub-sea work as evidenced by the Hibernia project. In any case, if ROVs are used with or without divers, they must be operated by qualified personnel. Steps should be taken to develop an adequately trained ROV workforce within the Province.
The Panel recommends that the Proponents be required to identify to the Board the level and type of qualifications required for positions on their remote operating vehicle crews and indicate where such training can be obtained and that the Board initiate arrangements for establishing appropriate training in the Province.
By the same token, the Panel believes that a deep-sea diving capacity should also be developed here. At the very least, the Panel believes the Proponents should reassess the need for deep-sea divers and confirm the result of their reassessment to the Board. Clearly, steps should be taken to obviate a situation in which divers, previously claimed to be unnecessary, have to be recruited, at some later date, from outside Canada. There is, indeed, an onus on the developers, by reason of the Atlantic Accord legislation, to work with government and appropriate worker representatives, to identify the human resource requirements of a project in a timely manner, so that the first preference clause with respect to Newfoundland residents is not made impotent. The educational requirements of the Accord Acts look to the development of new skills with or without additional government funding, as an aspect of the development plan application approval.
The Panel recommends that the Proponents be required to reassess their need for deep-sea diving throughout the life of the Project and report the findings to the Board and that, if a need for divers is demonstrated, the Board initiate arrangements for appropriate training in the Province.
In respect of training for the Project, the ODC, the International Brotherhood of Electrical Workers (IBEW), and several individual participants in the hearings process made a strong case for a well-conceived training program. They argued persuasively that in any area where technology is rapidly advancing, a concomitant and continuing upgrading of skills is absolutely necessary both to increase productivity and to enhance quality of work. In their view, which the Panel shares, both pre-employment and on the job training programs that would encourage workers to adopt and effectively utilize leading edge technologies as they emerge throughout the life of the Project, should be devised in consultation with labour.
The Proponents' position on training for the preproduction phase, as identified both in the development application and at the public hearings, is based upon their study of the availability of fabrication and construction skills in Newfoundland to meet the needs of the Project. From that study they conclude, that with some small exceptions, the required skills can be met from the existing labour pool. They believe that preproduction phase training will be generally limited to issues of safety and to appropriate skills upgrading. They intend to work with the relevant labour organizations and governments to identify particular requirements.
The construction of the nickel smelter in Argentia and the mine in Voisey's Bay are expected to be coincident in time with Terra Nova construction and will demand many of the same skills. The Proponents have not attempted to assess the combined effects of these projects on the labour supply, but they remain confident that there will not be a shortfall in most trades. If there should be a problem, they believe that deficiencies could be made good by recruitments from the Maritime provinces or from the rest of Canada.
For the operations phase, the Proponents intend to hire individuals with appropriate education and experience. These employees will be provided with mandatory offshore survival and safety training, and with any other specialized on-the-job
training required. An operations training manual has been prepared, and career development models are in the process of development, which are intended that in due course, all, or virtually all offshore crews will be residents of the Province.
The scant attention given to training in the preproduction phase of the Terra Nova Development is not only a concern of the unions but of the Panel as well. Even if the Project is a comparatively small one, the Proponents, like most progressive employers, should provide for their employees opportunities to improve their job skills, and workers should be able to expect experiential values from their work in addition to the monetary compensation they receive.
The Hibernia experience should have given us the wisdom to avoid situations where local workers were, without prior warning, declared unqualified for certain phases of the job. Thus, before construction starts, the Proponents should supply the Board with a list of the skills to be required by the various trades throughout the life of the preproduction phase; an analysis of any shortfall in skills among the local labour force; and, a plan for upgrading qualified tradespeople to the level required by the Project as it proceeds. The Board should have power to enforce compliance.
The Panel recommends that as part of the benefits plan approval process, the Proponents supply: a list of skills required for the various trades throughout the life of the Project; an explanation of where shortfalls of skills are anticipated when compared with the local labour force; and, a plan for co-operation with government agencies, training institutions and unions to develop and fund training programs for Newfoundland tradespeople to attain the level of skill required for the Project. Such training programs should provide for periodic updating as the Project proceeds.
The human resource plan envisaged above should be made available in the immediate future, not only to the Board, but to government and to post-secondary educational institutions, so that appropriate actions can be taken to prepare residents of the Province for job opportunities as they emerge. If the petroleum industry is to be important to the Province, and if young people are to be encouraged to make appropriate career choices, then educational institutions, governments and the oil industry must co-operate in ensuring them access in the Province to the education and training required to effect such a consummation.
The Panel recommends that the Board and the Proponents work with school boards to promote an interest in careers in the oil industry, through participation in career days, guest lecturing in science courses, providing scholarships, and the like.
The Panel recommends that the Proponents provide to the Board, to government and to educational institutions information on jobs in the operations phase, including specific qualifications required, to allow planning to take place regarding the development of any new training required.
3.5 Industrial Relations
The development application is virtually silent on the subject of how industrial relations will be conducted during the life of the Project. The Panel notes, however, that immediately prior to the commencement of public hearings an agreement (known as the PCL Agreement) was concluded with various construction unions with the intention of creating a suitable labour relations climate at the Bull Arm site in anticipation of Terra Nova-related construction work being done there. From this it might appear that the Proponents are, at least, not inimical to the idea, expressed by many participants in the public hearings process, that high productivity, safety, and other valued outcomes, will derive from a sound, co-operative labour management regime. To this end the Panel conceives that a good project agreement between the parties, negotiated in good faith, is the best possible assurance of satisfaction for workers and proponents alike.
The Panel recommends that the Proponents require contractors and subcontractors to work towards developing a true partnership with workers and their representatives.
The ODC, representing building and construction workers at Hibernia, indicated their view that the project agreement negotiated in that case had worked "without any relative degree of incident, and produced a tremendous sense of accomplishment and pride of work . . ." Such flaws as they perceived to exist in that agreement could, they believe, be eliminated by bringing any comparable agreement for Terra Nova under the aegis of the Province's Labour Relations Act; by acknowledging the full intent of the Atlantic Accord and the Accord Acts; and, by providing for coverage of all trades and technical personnel both onshore and offshore and during the commissioning phase. Other participants in the hearings process reiterated those views and added criticisms of the manner in which dispute resolution procedures in the Hibernia Agreement were implemented. The consensus among those who addressed the issue appeared to be that any agreement should be concluded under provision of the Labour Relations Act and that collective bargaining should extend to the offshore operational phase of the Project.
The Proponents indicated no definitive plan nor clear intention in respect of unionization other than to express a commitment to amicable and fully cooperative labour relations.
It is the perception of the Panel that unionization, in and of itself, need not be an impediment to efficiency, productivity or competitiveness. On the contrary, a responsible union and a good collective agreement may be the best possible assurance of all three. It is true that an atmosphere of jurisdictional wrangling among unions, or of confrontational politics between union and management leadership, are enemies, not only of peace, but of productivity. On the other hand, an atmosphere of mutual respect between employer and employee, and a joint contractual commitment to specific declared objectives can best assure the attainment of those objectives. In particular, the Panel believes that the issues of safety, both personal and environmental, will be better served when workers are full parties to the development of policies and procedures reflecting such matters and co-operatively involved in their implementation. Again, an agreement that guarantees no disruption of work during a construction process where time is an important consideration, must be regarded as eminently desirable from the employer's perspective. Further, it is the Panel's view that a union agreement will most readily and most effectively ensure access to the most highly skilled tradespersons in the Province. Given the nature of the Project, the Panel does not conceive that industrial agreements with several separate unions is a practical possibility; nor that, particularly in the offshore environment, the exclusionary rights of individual unions to specific jobs can be sustained.
The Panel recommends that, if a union agreement is negotiated for offshore workers, it should be between single entities and should clearly provide for a flexible workforce that is not hidebound by the existence of rigidly narrow trade classifications.
3.6 Alliance and Partnering
Management for the Project will be based on the alliance philosophy. In this type of arrangement, long-term relationships between the operator (Petro-Canada), contractors and possibly key suppliers are established to achieve collective objectives in a more effective and efficient way than through traditional contracting. Under the traditional system, the operator took a large role in direct project management and generally assumed most or all of the associated costs and schedule risks. In an alliance, each member company participates in a risk-reward commercial arrangement with established targets that include completion of the Project on schedule and within budget, while maintaining quality, safety, environmental protection and functional efficiency.
NOIA offered enthusiastic support for the alliance concept and indicated that Newfoundland companies have already reaped significant benefits from this approach. Unions too supported the concept but indicated their belief that alliancing would be more effective if workers, through their union representatives, were recognized as significant partners so as to eliminate the distrust between workers and management that had, to some degree, at least, soured the Hibernia experience. Such a partnership, in the opinion of the unions, would be advantageous to both the Proponents and the Province. For example, in meeting the demand for highly skilled and productive workers, the unions would draw upon local resources, giving first priority to qualified residents of the Province of Newfoundland, thus honouring the intent of the Atlantic Accord. When and if the need arose , the union could bring qualified union members from any part of Canada. Although not denying the possible usefulness of the alliance concept, the Town of Marystown expressed some reservations. Their fears centered upon the proposition that alliance partners would tend to look after themselves and those firms with whom they were accustomed to doing business. In such circumstances a small operation like the Marystown Shipyard might well be overlooked. Only if they were included in the alliance group, they felt, would their concerns be relieved.
In seeking to assuage such concerns, the Proponents indicated that while the alliance was chosen for its ability to deliver project management services for a large project, they were committed to ensuring that procurement personnel were familiar with domestic capabilities, and would include all qualified domestic suppliers on the appropriate bid lists. The actual provision of goods and services would follow the conventional industry practice of open bidding. Marystown Shipyard would be given every opportunity to bid for any work for which they were capable.
From the Panel's perspective, the alliance approach is introducing a new management strategy to Newfoundland businesses. Communications with contractors will be improved and the operator will be more closely attuned to the contractor's operations than under the conventional system. This approach should prevent some of the difficulties that arose with Hibernia when certain contractors did not, perhaps, fully appreciate the importance of the first consideration provision for Newfoundlanders and Newfoundland businesses as outlined by the Hibernia proponents in the benefits plan. Under an alliance arrangement, such failures of communication should be more readily avoided. The Panel urges the Proponents to use the strengths of the alliance arrangement to enforce the requirements of the first principle clauses of the benefits plan, and to ensure that contractors and subcontractors and their management employees are fully aware of and, just as importantly, understand the reasons for these statutory requirements.
The Panel recommends that the Proponents require their contractors and subcontractors to educate their management staff, down through the supervisor level, about the rationale for and the requirements of the Atlantic Accord, so that all decisions can be made in the context of that Accord.
Some participants demanded a more active role by the provincial government in protecting the interests both of the Government of Newfoundland and Labrador and of workers employed on offshore oil projects. These participants interpret the lack of specificity concerning Newfoundland benefits in the benefits plan as an indication that the Province will not receive from the Project the employment and economic benefits it deserves. In this context, they were most critical of what they described as a "blanket of silence" in regard to the Province's position on international competitive bidding, and based on their experience with Hibernia, in respect of the Province's failure to respond to union concerns about a regime that denies local workers opportunities for employment. For some unions, government inaction derived either from misinformation or from reposing altogether too much trust in the good faith of large international contractors to put the interests of Newfoundlanders in first place.
These views give the sense of a strongly held perception that there has indeed been slippage in respect of the spirit and intent of the Atlantic Accord. The Panel itself is inclined to this view, and further believes that governments must take ultimate responsibility for assuring compliance with the Accord Acts even though they have delegated this function to the Board. With the Terra Nova Development, we are now beginning what is essentially a new game; and the recently negotiated PCL Agreement may, indeed, have eliminated the perceived sources of earlier friction. Nevertheless, the Board must be vigilant in monitoring for compliance and in taking strong measures in the event of non-compliance. In particular, the Panel believes that the establishment of quotas for Canadian, and in particular Newfoundland workers, as in the case of Hibernia, is now inappropriate taking into account the expanded capabilities of Newfoundland businesses and workers developed during the Hibernia project. Any deviation from the principle of first consideration for Newfoundland workers, if necessary, should require written authorization from the Board and the prior knowledge of the appropriate worker representatives. Such occasions should be rare, for the Proponents have ample lead time to define their personnel requirements and to specify special qualifications and experiences needed during the life of the Project. With sufficient advance notice, the Proponents, governments and unions can develop a plan to train or upgrade qualified workers. So that there can hardly be an excuse for the Proponents or the Board to allow a situation requiring that skilled personnel must be brought from outside the Province, any such requirement should be identified well before the start of the Project so that appropriate agreement among the parties can be concluded in a timely fashion.
The Panel recommends that the Board discontinue the practice of establishing employment targets for Canadian, and in particular, Newfoundland workers.
The Panel recommends that the Board insist upon compliance with the spirit and intent of the Atlantic Accord so as to avoid the necessity for bringing personnel from outside the Province solely because the need was not identified early enough to permit the training of local residents.
The Panel recommends that the Government of Canada and the Government of Newfoundland and Labrador require the Board to prepare an assessment of the effectiveness of the Accord Acts in securing first consideration for employment of Newfoundland residents, together with recommendations, if necessary, for strengthening the provisions of the Accord Acts or its regulations so that benefits accrue to Newfoundlanders according to the original spirit and intent of the Accord. Furthermore, the Board should carry out regular periodic reviews of the effectiveness of the Accord Acts in the future.
The Panel recommends that, should deviations from the principle of first consideration for Newfoundland workers be deemed necessary, the Proponents, with the full knowledge of the concerned worker representatives, be required to seek written authorization from the Board.
Special consideration for workers in Newfoundland and Labrador is predicated on an employment rate in the Province lower than the national average. In fact, this Province's unemployment rate is approximately 20%, more than double the national average, and would be much higher were it not for the large scale out-migration of young people and families who cannot find work at home. At the same time, the per capita earned income for Newfoundlanders remains significantly below the Canadian average. In 1984, this figure was 56.9% of that for Canada as a whole. It was against this backdrop that the Atlantic Accord was negotiated. The discrepancy has not changed significantly since then and it is, therefore, clearly incumbent upon governments and the Board to enforce strictly all legal measures to ensure that Newfoundland workers are employed in projects that exploit Newfoundland resources.
3.7 Other Employment Issues
In the case of Hibernia, extensive overtime was part of a management strategy to complete the project in the shortest time possible. The ODC told the Panel that many workers were required to work seven days a week, 10 hours a day for upwards of eight months without a break and requested the Panel to recommend a legislated restriction on such excessive overtime.
The Panel is pleased to note that the Proponents plan to implement a standard 40-hour work week and do not have a planned overtime schedule for the Project. The Panel believes this to be a wise decision in as much as excessive overtime generally disrupts the lives of workers and their families, increases the risk of accidents causing injury and loss of life, possibly limits productivity and quality of work, and exacerbates the problem of unemployment. In any case, given the large numbers of unemployed workers here and scattered throughout Canada who are eager for work, there should be no need to resort to such practice. A larger workforce benefits everyone -- the employer, who profits from increased productivity and safety; the worker, who gains a greater chance of employment and increased opportunity to advance in his/her trade; and, the Province, which benefits when people earning an income pay taxes and generate multiplier effect employment. The Panel does not believe, in light of assurances given by the Proponents, that legislation is necessary at this time. It does, however, in view of the practical need for some occasional overtime, recommend that such be limited to a normal maximum of 10 hours per week.
The Panel recommends that a work week of 40 hours and maximum levels for overtime of 10 hours per week be established by the Board as the norm for the Terra Nova Development.
Workers who appeared before the Panel drew upon their Hibernia experience and consistently complained about communications. The ODC, in particular, considered the Proponents' communications to date to be wanting, especially with regard to the partnering concept and its implications for local businesses and workers.
The Panel is strongly inclined to support the ODC view that inadequate communications account for a substantial percentage of all labour relations problems. It also agrees that in as much as the Proponents' submission was lacking in specific information, particularly in the benefits plan, the germ of future problems arising from misinformation and misunderstanding already may have been planted. The Panel, therefore, urges the Proponents to ensure that more open lines of communication are established now, and maintained for the life of the Project, and that new and innovative ways be devised to monitor and update information supplied to the public. The Panel notes that the provincial government and the Board may also be found lacking in respect of their clear responsibility to keep the people of the Province informed with regard to the exploitation of their resources. In justice, the Panel also notes that the Proponents' failure to supply full information on local employment prospects is owing in part to the unknowns associated with a government-approved process, i.e., competitive global bidding. As a final note, the Panel is aware that the Proponents should not be blamed for everything that, from the workers' perspective, went wrong with Hibernia, and is also aware that worker representatives themselves have some responsibility for the dissemination of information to their peers.
Notwithstanding, the Proponents should be advised that the public expects to be kept informed of what is happening with the Project, and particularly with respect to benefits issues. Straightforward reporting indicating not only compliance with, but any deviations from enunciated policies, procedures and principles, should be done at regular intervals.
The Panel recommends that the Proponents be required to institute an appropriate system for providing regular information to the public, not only regarding job and business opportunities, but also regarding the extent to which it is adhering to all commitments made in the context of its benefits plan.
As to the Board, the Panel is aware that it has heretofore maintained a low profile and has not made a priority of keeping the public informed of its activities. The Panel believes, however, that it should initiate a consumer-oriented public information effort, recognizing that the people have a stake in natural resources and a right to know what is happening to them. This argument applies pari passu to the Government of Newfoundland and Labrador which has a clear obligation to keep the public fully informed of policies in place that affect the exploitation of natural resources and that determine the benefits that the Provincial government expects to derive from the depletion of such resources. The availability of correct information may prevent some of the misunderstandings and anxieties about offshore development that were expressed at the hearings.
The Panel recommends that the Board commence a regular public information program to update the people of the Province on the results of its compliance monitoring efforts and other matters of interest to the public concerning activities of the offshore oil industry.
The Panel recommends that the Government of Newfoundland and Labrador improve its public information efforts concerning the offshore oil industry, in particular by releasing full information concerning any changes in existing petroleum policies or the adoption of new ones, together with clear explanations of policies in place.
Throughout Canada, certain professions, whose activities have implications for the safety and welfare of the public, are self-regulated under authority of relevant provincial legislation. One such group, the Association of Professional Engineers and Geoscientists of Newfoundland, made representation to the Panel on their experience with the Hibernia project. Their principle concern was that engineering and geoscience work for the offshore should be performed only by qualified professionals, registered to practice in the Province and the management and supervisory professionals to whom such workers report should also be registered in this Province.
While the onus is on the individual to register with the appropriate professional organization, companies have a responsibility to see that this is done. It is clearly for companies to decide how they will discharge their statutory responsibility to have engineering work in the Province performed by Newfoundland registered professional engineers. The Panel would, however, urge full co-operation by the Proponents with the professional body in supplying information on individuals being hired from outside Newfoundland. The Proponents should ensure that their professional employees are registered in the Province.
The Panel recommends that the Proponents, their contractors and subcontractors be required to honour any statutory obligations respecting the licensing of professionals who work in the Province of Newfoundland.
3.8 Benefits to the Economy
Supplier distribution and development were the principle economic benefits issues brought before the Panel. In particular, the Town of Grand Falls-Windsor drew the Panel's attention to the potential for companies, other than those located in the four construction areas named by the Proponents, to participate in any economic activity generated by the Project. They suggested that the Proponents look to the whole Province for their prospective suppliers, hold public information sessions, and use existing organizations such as the regional economic zone boards, chambers of commerce and municipal economic development offices to disseminate printed information to the business community.
The desirability of spreading economic benefits to smaller towns was also stressed by the Town of Marystown and the Marystown-Burin Area Chamber of Commerce. Both promoted the use of Marystown Shipyard and the Cow Head facility, as well as other industrial providers in the area. They noted, in particular, that the Marystown-Burin area already had community infrastructure in place to support industrial activity at the level that might be anticipated.
NOIA indicated that its members, having already benefited from the offshore oil industry, were ready and fully able to contribute significantly to the success of the Project. Their presentation exuded optimism that Newfoundland can build on the momentum of its Hibernia experience and through full participation in the Terra Nova Development assist in laying firm foundations for an industry with long-term potential for local development and, indeed, for export of technical expertise and services.
The Panel notes that the Proponents have committed to a course of action to ensure that offshore fabrication and construction yards in Newfoundland have an opportunity to enter the bidding process. Furthermore, the Proponents are committed to using their best efforts to bring to Newfoundland the fabrication, assembly and outfitting services associated with new construction or modifications on the topsides facilities of the production platform, the sub-sea facilities, the mooring systems and the production risers.
Further, the Panel is pleased to note that the Proponents have adopted policies designed to enhance the competitiveness of Newfoundland businesses. Bids will be packaged into smaller modules so that local yards can compete for the work. An assessment of the capability of local yards has been completed. If requested to do so, the Proponents will provide assistance to help yards focus on the aspects of supply for which they are best suited and, if necessary, will assign individuals to these enterprises at an early stage to assist with project management.
The Panel recommends that the Proponents use their best efforts to promote supplier development throughout the Province.
Further still, the Proponents are committed to the concept of local content in goods, services and labour as an important factor in awarding bids. Companies bidding on the use of a location outside Canada will be required to supply a bid for carrying out the same work in Newfoundland. If bids are equal in price, quality and delivery, the contract will be awarded to the company providing the goods and services from Newfoundland. When all technical and commercial considerations are satisfied, but bids are essentially equal, the Proponents will award the contract to the bid offering the greater benefits to Newfoundland. If a contract cannot be awarded in Newfoundland's favour, the Maritimes and the rest of Canada will get consideration, and in that order.
With those commitments in mind, the Panel finds it inconceivable that Newfoundland and other Canadian businesses should not share in the economic benefits from this development. Newfoundland has several ideal sites for fabrication by virtue of their location close to the Grand Banks, a plentiful supply of skilled labour fresh from Hibernia experience, and a business community ready to respond to the challenge of servicing this new industry. The Panel confidently anticipates the expansion of existing businesses and the development of new services and supply companies.
The preproduction phase will be the most visible to local residents, though because of the relatively short construction period, greater benefits will probably flow from the sustained economic activities of the drilling and production phases. Those will offer stable employment and opportunities for the Newfoundland business community to supply a wide variety of goods and services over the life of the field, possibly up to the year 2018.
Despite this relatively optimistic forecast, the Panel is concerned that the Board might set targets for Newfoundland content in services and labour and that these might be achieved through existing capability. The Panel believes that it would be a great disservice to the development of a local industry if such targets were set; and if the Project was allowed to proceed without a substantial transfer of technology and without the development of new supporting industries, such as sub-sea systems, deep-sea diving, ROV operations; and without development in technical areas such as instrumentation, remote sensing, environmental monitoring and the like; and without development in the general fields of supply, maintenance and repair. In the Panel's opinion, it should be possible that all labour and all services might be provided from Newfoundland or other Canadian sources.
Prior to the approval of the Project, the Board must satisfy itself that transfer of new technology and the development of new industrial supports will occur. These two requirements can be accomplished within competitive bidding and must not be stifled by it. Technology transfer and new industrial development should come about with each succeeding project and must be a prime requisite for any project approval.
The Panel recommends that the Board ensure that Newfoundland content in the Project is maximized and that such content includes technology transfer and support for existing and new industries in the service sector.
The Panel recommends that the Board develop a plan to ensure that technology transfer and new industrial development become a prime requisite for the approval of future oil development projects.
3.9 Social Impacts
One of the objectives of an environmental assessment review is to identify how a project will have an impact on the social fabric of the community in which it is located. Population change associated with increased industrial activity and employment is normally the stimulus for other social changes, some of which can be negative. The number of jobs created by the Project during the preproduction phase is expected to peak at 500 to 600 and last for approximately two years. During the drilling and operations phases, 400 to 500 people will be employed in offshore operations. Neither of those job forecasts are sufficient to produce population changes that cannot be absorbed within existing infrastructure and social supports. No negative impacts are expected from the Project.
Social impacts that may, in the longer term derive from a growing oil and gas based industry are beyond the scope of this review, as are the impacts of increased government revenues in the form of royalties and taxes.
If the number of participants concerned with social issues is an indicator, the social impact of the Terra Nova Development is not a priority for most residents of the Province. The towns of Grand Falls-Windsor and Marystown promoted their areas in an effort to attract the socio-economic impacts of the Project, rather than raising concerns. The Bull Arm Area Co-ordinating Committee, representing communities within a 50 km radius of the Hibernia construction site, also sought increased community participation. They, too, accept the general view that the anticipated negative social impacts of the Hibernia project had not materialized, even in the communities adjacent to the site. There was a feeling, however, that while the self-sufficiency of the campsite prevented adverse social impacts, it also limited economic growth in surrounding communities and diminished employment opportunities for residents of those communities. Thus, to the Bull Arm Area Co-ordinating Committee, an increased involvement in their area would have entirely positive connotations.
In short, Hibernia has been a test case for social impacts from oil development. There was virtually unanimous agreement that the predictions of severe negative impacts, prevalent during the planning stage of that development, did not occur. As with previous developments in other sectors, Hibernia has demonstrated the absorptive capacity of the Province to withstand economic expansion without undue social disruption or inflationary pressures. While some of the mitigative measures undertaken by Hibernia Management and Development Company (HMDC) prevented social disruption from occurring, the Panel believes that it will take more than the Terra Nova Development before any negative socio-economic impacts occur within the underutilized capacity of the Newfoundland economy.
The Proponents have indicated, and the Panel agrees, that the modest size of the Terra Nova workforce, 500-600 people at peak, does not require the kinds of mitigative measures introduced for Hibernia. In other respects, the Proponents have already acted to alleviate some of the concerns expressed by the Bull Arm Area Co-ordinating Committee. The PCL Agreement provides for residents of the area, who have the required skills, to join the various unions and enter the workforce without the normal waiting period. The Panel acknowledges this effort by the Proponents to settle in an amicable manner the contentious issue of employment preference for residents of adjacent areas, particularly in view of a provincial policy defining "local" as covering the whole Province. Further, it has been decided that whatever construction site is chosen, no on-site accommodation will be provided. This should result in some demand for rental units, boarding homes and other revenue-producing services in the surrounding communities. A fisheries compensation package will also be available if necessary or appropriate.
The Proponents have rejected a 5% preference policy for local businesses, as proposed by some participants. The Panel is generally supportive of this position, accepting as it does the Proponents' declared intention to work with the business community across the Province to promote supplier development. The Panel supports equal opportunity for all businesses in the Province on a fair and equitable competitive basis.
Two other matters raised by the Bull Arm Area Co-ordinating Committee require comment . The first concerns special funding for a liaison group and the other concerns the possibility of bringing the Bull Arm site under the control of an adjacent municipality.
The Bull Arm Area Co-ordinating Committee was funded through the Offshore Development Fund to provide a link between the local communities, government, and the Hibernia operator to facilitate dissemination of information about the project, particularly with regard to employment and to provide feedback regarding undesirable impacts. Although this was a useful measure at the time of its implementation, and although the committee has served well, the Panel cannot see, in the altered circumstances of the Terra Nova Development, any justification for the continuation of special funding.
The Panel recommends that, while the Government of Newfoundland and Labrador may decide to renew the funding for the Bull Arm Area Co-ordinating Committee, the Terra Nova Development should not be considered as a reason for such renewal.
Nor is the Panel disposed to support the proposal that the Bull Arm Industrial Site be placed under the jurisdiction of a municipality or other form of regional government that would administer the properties and collect taxes from companies operating on the site. The Panel's rationale is that none of the municipalities in the area have the highly skilled technical and operational staff required to establish and enforce the various building, safety and environmental codes that would be necessary. The Panel is therefore recommending that the area remain under the jurisdiction of the Department of Industry, Trade and Technology.
The Panel recommends that administration of the Bull Arm site remain under the jurisdiction of the Department of Industry, Trade and Technology.
It can be assumed, however, that developments associated with the Terra Nova Project would provide to adjacent communities revenue-generating possibilities through the sale of services, such as water, sewer and waste disposal, and other rental and property tax revenues. The Panel notes, however, during the Hibernia construction phase, many workers set up trailers in unregulated areas by roadsides outside municipal boundaries. These, in time, became a source of pollution of the land and of streams that flowed through adjacent communities. Had those trailer dwellers been required to establish themselves within communities where services were available, the pollution problem would have been averted and municipalities would have been in a position to increase their tax revenues without incurring significant new costs. The Proponents of the Terra Nova Development will not be providing housing for workers. The Panel therefore urges municipalities and responsible provincial authorities to take appropriate and early action to prevent a replication of the experience noted above.
Environment Canada, in its submission to the Panel, although concluding that the relevant socio-economic issues associated with the Project had been identified, was critical of the Proponents' approach to their quantification and to the assessment of their potential impacts. Environment Canada would have preferred a more theoretical approach to impact identification, including working definitions, a comparative analysis with and without the Project that would include quantitative and qualitative assessments, a protocol for mitigating negative impacts, and a monitoring program for both the effects and the results of mitigative measures. Environment Canada also suggested that the Proponents should revise their assumption that no socio-economic impacts will result from offshore operations. The suggestion here was that socio-economic impacts could indirectly derive from environmental impacts that might result if ocean dispersal of oil-based muds (OBMs) and produced waters are the selected technological alternatives.
The Proponents defended their methodology for socio-economic impact assessment and stated that even if Environment Canada's recommendations had been followed, they would have lead to the same conclusion but would have required significant additional time and money. The Panel concurs, and is satisfied that the Proponents have supplied sufficient information for the Panel to determine that the development will not have significant negative social impacts and that a monitoring program is considered unnecessary at this time.
3.10 Worker Safety
The Panel has a mandate to consider issues of life safety. However, the Board did not require the Proponents to include a safety plan with the documents comprising the environmental impact statement (EIS). They will be required to submit such a plan for Board approval prior to the commencement of operations at the Terra Nova site. The Panel believes that the life safety plan is a matter of such great significance that it ought to have been made available for public review. The Panel believes that the Board, when they have received the plan, should make it generally available for the information of the public, and allow a sufficient period for the receipt and consideration of public comments before proceeding to the approval stage. For the future, the Panel believes that the Board should require that a safety plan be an essential element of any EIS submitted for review.
In respect of the safety plan for the current project, the Board must ensure that it is predicated upon the principle that life safety is the paramount consideration at all times. It must, of course, satisfy all regulatory requirements established under occupational health and safety legislation and other relevant acts. It must provide for comprehensive safety training; it must provide for emergency and contingency planning; it must provide for drilling and production operations that are fail-safe insofar as it is possible for them to be so; it must take into full account the extreme weather, sea and ice conditions likely to be encountered on the Grand Banks; and, it must contain clear protocols for avoidance of hazards when other forms of management may increase risks. It must be founded on a clear and thorough risk assessment and must set high performance standards for hazard management. It must contain provisions for evolution as engineering studies, together with operational and safety audits, suggest better ways of minimizing risk. In particular, the Board must be convinced that the FPSO design incorporates temporary safe refuge areas and more than one protected escape route. Most particularly, the Board must be sure that the evacuation systems are chosen only after careful assessment of studies of all such systems undertaken subsequent to the Ocean Ranger disaster, and that the ones selected are the very best available.
Although the Panel received few submissions directly related to worker safety, it is clear to the Panel that the safety of workers associated with the Terra Nova Development is nonetheless a matter that all participants viewed as a fundamental consideration. The Panel has already referred to the importance of worker involvement in implementation and management of any safety program. The significance of such arrangements cannot be overstated. Indeed, every individual involved with the Project must be fully informed, fully sensitized, and fully committed to the proposition that safety both of personnel and of the environment are first priorities.
The Panel recommends that the safety plans for the Project be released to the public for information and that the Board allow sufficient time for receipt and consideration of public comment before proceeding to approval. For future projects, the Panel recommends that the safety plan be a required element of the environmental impact statement.
The Panel recommends that the Board ensure that the safety plan for the Project is built upon the highest standards for materials, design and operational procedures to ensure life safety; that safe refuge areas and escape routes be designed with worst-case scenarios clearly in mind; that evacuation systems represent the best available technology; and, that workers be made partners in developing and monitoring safety procedures.
- Executive Summary
- 1.0 Introduction
- 2.0 Fundamental Findings
- 3.0 Socio-Economic Impacts of the Project
- 4.0 The Impact of the Environment on the Project
- 5.0 Environmental Effects of the Project
- 6.0 Monitoring
- 7.0 Recommendations
- Appendix A: Biographies of Panel Members
- Appendix B: Terms of Reference
- Appendix C: Participant Funding Program
- Appendix D: Presenters at Public Hearings
- Appendix E: Key Review Documents
- Appendix F: Acts, Regulations and Guidelines cited in the Report
- Appendix G: Abbreviations
- Appendix H: Glossary
- Appendix I: Acknowledgements
- Figure 1: Location of the Terra Nova Development
- Figure 2: Terra Nova Oil Field and Potential Drill Centre Layout
- Date Modified: