Proceedings of the Standing Senate Committee on
Aboriginal Peoples

Issue 4 - Evidence - Meeting of April 28, 2009


OTTAWA, Tuesday, April 28, 2009

The Standing Senate Committee on Aboriginal Peoples, to which was referred Bill C-5, An Act to amend the Indian Oil and Gas Act, met this day at 9:34 a.m. to give consideration to the bill.

[English]

Marcy Zlotnick, Clerk of the Committee: Good morning, honourable senators. Unfortunately, both the chair and the deputy chair are unavoidably absent this morning. As clerk of your committee, it is my responsibility to preside over the election of an acting chair. I am ready to receive a motion to that effect.

Senator Carstairs: Before I put that motion on the floor, I want to raise the strongest of objections to having a meeting of this committee without a chair or deputy chair. In my 15 years in the Senate, I have never known this to occur. I will not object to electing a chair this morning because we have the minister here and he has limited time. I will accept that but I want it very clearly on the record that this is unprecedented and unacceptable.

Ms. Zlotnick: Thank you, Senator Carstairs. Senator Carstairs does not object to proceeding with the motion for the election of an acting chair and I am ready to receive a motion to that effect.

Senator Campbell: I would like to nominate Senator Hubley.

Ms. Zlotnick: It is moved by the Honourable Senator Campbell that the Honourable Senator Hubley do take the acting chair of the committee.

Is it your pleasure, honourable senators, to adopt the motion?

Hon. Senators: Agreed.

Ms. Zlotnick: I declare the motion carried and I invite the Honourable Senator Hubley to take the chair.

Senator Elizabeth Hubley (Acting Chair) in the chair.

The Acting Chair: I would like to welcome all honourable senators, members of the public and all viewers across the country who are watching on CPAC or on the web these proceedings of the Standing Senate Committee on Aboriginal Peoples.

I am Senator Hubley from Prince Edward Island. In the absence of the chair and the deputy chair of the committee, Senators St. Germain and Sibbeston, I will be chairing today's meeting. Before proceeding to the meeting, which is to consider and deal with Bill C-5, let me introduce the others members of the committee who are present.

To my right are Senator Campbell from British Columbia; Senator Carstairs from Manitoba; and Senator Fairbairn from Alberta. To my left are Senator Brazeau, a new father, from Quebec; Senator Lang from the Yukon; and Senator Raine from British Columbia.

Today the committee is considering Bill C-5, An Act to amend the Indian Oil and Gas Act. This bill aims to clarify and expand the existing regulation-making powers and to add new ones, particularly with respect to licences, permits and leases for the exploration and exploitation of oil and gas on reserve lands, and the determination and payment of royalties.

To discuss the bill, we have before us this morning the Minister of Indian Affairs and Northern Development and Federal Interlocutor for Metis and Non-Status Indians, the Honourable Chuck Strahl. Minister, welcome to the committee. We are anxious to hear your views on Bill C-5.

I gather you will have to leave us before the end of the meeting but that your parliamentary secretary will be here and ready to take over if need be.

Here also is one of the officials from Indian and Northern Affairs Canada, Mr. John Dempsey, Director, Policy, Indian Oil and Gas Canada; and an official from Justice Canada, Mr. Karl Jacques, Senior Counsel. I also see Mr. John Duncan, Parliamentary Secretary to the Minister of Indian Affairs and Northern Development. Welcome.

Hon. Chuck Strahl, P.C., M.P., Minister of Indian Affairs and Northern Development and Federal Interlocutor for Metis and Non-Status Indians: It is great to be back on the Senate side giving testimony on this important bill. Thank you for introducing my officials. I would also like to recognize the representative of the Indian Resource Council who has attended the committee meetings often and who is here now: Mr. Larry Kaida, Assistant to the President of the Indian Resource Council.

Honourable senators, it is a welcome opportunity to report on our progress in delivering results. Another way to do that for Aboriginal Canadians in this case is bringing the outdated Indian Oil and Gas Act into the 21st century.

Before I highlight the most important features of Bill C-5, I want to thank the committee members for the valuable insights and advice you have given me since I have taken this portfolio. The excellent work of this committee, particularly your report, Sharing Canada's Prosperity — A Hand Up, not a Handout, has informed and corroborated much of my own thinking on how best to address the challenges facing Aboriginal people.

I especially appreciate your committee's positive response to the legislation we are discussing here today. In particular, I would like to thank Senator Lang for sponsoring the bill and Senator Peterson for his supportive speech in the Senate at second reading.

Bill C-5 is designed to facilitate the economic potential within First Nation communities by creating the legal certainty that attracts investment. It responds to recommendations in Sharing Canada's Prosperity — A Hand Up, not a Handout to reduce legislative and regulatory barriers that ``. . . have restricted the ability of on reserve First Nations' communities to take advantage of economic opportunities.''

As Senator Lang said in his statement, this act will modernize the federal regulatory framework for oil and gas exploration and development on First Nation reserve lands. It will bring our legislation in line with provincial regimes and enable it to keep pace with technological innovations.

While Bill C-5 would not increase the jurisdictional problems on reserve, it would allow federal regulations to incorporate provincial laws as they relate to environmental protection, exploration, equitable production or conservation.

[Translation]

Equally important, Bill C-5 will ensure First Nations' lands, the natural environment, and First Nations' property rights are protected.

[English]

During the consultations, First Nation members made it clear they are not prepared to compromise their cultural and spiritual values and their special relationship to the land. They want assurances that if a company damages the environment or puts areas of cultural, ceremonial or spiritual importance at risk, they will face the full force of the law. Bill C-5 does this and provides for First Nations to identify in advance any cultural, ceremonial or spiritually significant areas.

Honourable senators, because there is so much at stake, we took the necessary time to listen to all parties with an opinion about this bill before drafting the legislation. Over the past decade, Indian Oil and Gas Canada held sessions with oil and gas-producing First Nations, numerous tribunal councils and the Indian Resource Council. We also met with our provincial counterparts and industry. We listened closely to what people had to say and acted on much of the advice we received.

We need to pass Bill C-5 to move forward to complete the regulations and maintain momentum. Working with our partners, the Indian Resource Council and the Indian Oil and Gas Canada Co-Management Board, we are committed to a continuous change process. This will ensure our regime remains modern and competitive, and that First Nations can continue to take advantage of the economic opportunities from resource development.

As I pledged in a letter of comfort to the Indian Resource Council, we will be calling on the council to contribute to the development of the actual regulations — the nuts and bolts of this legislation. First Nations have been an integral part of the development of this bill and will continue that key role in the development of the regulations.

I have also assured the Indian Resource Council that the amended act will not come into force until the regulations are ready for publication in the Canada Gazette. We anticipate they will be ready as early as 2010.

Committee members can rest assured that this will continue to be a real partnership process. It is the best way to achieve our shared goal of ensuring First Nations benefit from opportunities for economic growth and the social progress that results.

Since forming the government, we have made clear our determination to ensure First Nations share equally in our country's prosperity. The passage of Bill C-5 will create legal certainty for industry, eliminating an impediment to investment in First Nations communities that has prevented them from exploiting business development opportunities in the energy sector. As your report pointed out, one of the keys to economic success is the willingness of the private sector to partner with and invest in First Nations.

[Translation]

First Nations will stand to benefit from increased opportunities in the oil and gas sector. This will spur economic activity, generating employment and wealth in their communities.

[English]

I know this is an objective shared by all honourable members of this committee. I look forward to working with you as you move this necessary and long overdue legislation forward to ensure we realize this goal. Thank you very much. I look forward to your questions.

Senator Carstairs: Thank you minister and welcome. The recent Supreme Court ruling, Chief John Ermineskin, et al. v. Her Majesty the Queen in Right of Canada, et al., upheld the ability of Canada in certain circumstances to unilaterally reduce its trust and fiduciary obligations to First Nations. The court held that Canada unilaterally can change and even reduce the interest it pays on First Nations' royalty monies in the Consolidated Revenue Fund.

Is Bill C-5 intended to reduce its fiduciary obligations to First Nations through legislative means — in this case, the Indian Oil and Gas Act and the regulations to be passed there under?

Mr. Strahl: No; I will not give an interpretation of the recent Supreme Court ruling, but I can give assurances that the intent and description of this bill — which has taken a number of years and many sessions with oil and gas- producing First Nations to develop — is to incorporate provincial legislation as far as best practices go.

One of the unfortunate realities is that this bill has not been updated for many years. Since it was last updated, the Alberta government has updated and amended their oil and gas regime 15 times. We are really out of date with this bill, which means that First Nations are not maximizing their potential oil and gas development on First Nations reserves; nor do they have a strong regime of regulations that allows everything from environmental protection to cultural and spiritual protection; nor do we have the legal remedies to force companies to clean up their act on everything from making sure they pay their royalties to making sure they clean up after they have finished the economic development.

All of this is incorporated in the amendments to the bill and nothing takes away from the fiduciary obligations of the federal government. It incorporates the best practices used across the country. That lack, in my opinion, has made it less than ideal to allow First Nations to maximize the return on their own properties. This bill will be a good news story for First Nations across the country.

Senator Carstairs: A number of pieces of legislation have come before Parliament in which we have specifically acknowledged either section 35 of the Constitution or the fiduciary responsibilities of the federal government. Why did you not put a clause in the bill that would recognize that this would in no way reduce your fiduciary obligations?

Mr. Strahl: First, after many years of consultation and many meetings with the Indian Resource Council, tribunal councils and many First Nations groups, we came up with a bill that we feel not only addresses the concerns they raised during the consultation process, but also spells out very clearly the federal Crown's obligations. The bill spells out the obligations of the office of the Minister of Indian and Northern Affairs and some of the opportunities that First Nations will enjoy on both the protection and development side.

However, nothing in the bill takes away from the Constitution or the federal government's obligations. Quite typically in legislation, you include things that specifically need to be mentioned, clarified or straightened out, but you do not add into it things that are a given when it comes to the constitutional realities of the country. The constitutional realities are that there is and there will continue to be federal fiduciary responsibility for oil and gas development on First Nation lands.

All this spells out how we will do that. I have also given a letter of comfort to the Indian Resource Council to assure them that nothing will happen even on the regulatory side until we have consensus because it is important to get the details right. None of that takes away from the constitutional reality that Canada works under and I am pleased about that.

Karl Jacques, Senior Counsel, Department of Justice Canada: I would like to point out that the only section that has not been amended is the non-derogation clause in the act. Section 6(2) is a non-derogation clause and has not been changed. There was no intent to change any of that section.

I point out that the Supreme Court decision recognized a fiduciary obligation by the whole scheme of the Indian Act and nothing in this act has amended any of the sections that have been debated during the process in the Supreme Court. At this point, nothing in this act is aimed to address the issues that were addressed in the Supreme Court. It builds more foundation.

Senator Carstairs: My final question for this round has to do with the government. The ruling made by the Supreme Court in fact gives the government the right under certain circumstances to reduce the applicable royalty rates. Is it your intention to reduce the royalty rates applicable to oil and gas production from Indian reserve lands?

Mr. Strahl: No, in fact, there is provision to make sure that what the market rates for exploration would be can be enforced and maintained. Those negotiations typically take place between a First Nation and an oil company. With this bill, we finally have the ability to enforce the quantity of oil, how it will be extracted and how the cleanup will take place. We also have the provisions to follow through on obligations that are due to the First Nations on both royalties and other commitments. We have the ability to levy hefty fines to ensure that happens, which was not the case before. Fines now can end up, if necessary, in the range of $100,000 a day. There is little doubt that we will get compliance with this act. In fact, there is some fuss in the industry that we will have too much for fines or too much pressure on them.

As far as I am concerned and as far as the legislation dictates, the entire effort is to make sure of the commitments made to First Nations. The issues involving the environment and cultural protection are as important as the economic development opportunities. This bill will allow us to do both. It also gives redress through the court system to make sure it is enforced. All of this is strengthened with this bill and it is absent without it. This is a much stronger regime for First Nations that have oil and gas potential.

Senator Brazeau: Welcome to all of you. Thank you, minister, for taking the time to be with us this morning.

Can you highlight one example of how the amendments to the Indian Oil and Gas Act will improve the conditions of communities that will be affected by this legislation and, more important, the citizens living in those communities?

My second question is with respect to support from First Nations communities. You mentioned that there have been discussions with tribunal councils and other stakeholder groups. Can you share with the committee what type of support you received from those communities that are affected directly from this piece of legislation?

Mr. Strahl: Thank you, senator. I could sum up the benefits of the bill in three categories. One is that it increases legal certainty and clarity, which is important because up until now it has been more hit and miss. Many companies are responsible and have treated First Nations well, but you never are quite sure and there is not legal certainty, so two things can happen. One is that potentially some First Nations could get taken advantage of, if you will, but second, because of that lack of certainty and clarity, other companies are unwilling to invest on First Nations land. They say, ``If I do not know the rules, I am not going there.'' Business abhors uncertainty of all kinds and the oil and gas industry is no exception. Because this will clarify the rules, and because the development of the regulations will make it crystal clear, I believe companies will re-examine their options on First Nations lands across the country and say, ``Now that I know the regime and the regulations, count me in. I want to invest in your lands and help make that economic opportunity for you.''

It is also important to remember that increasingly First Nations are taking an ownership position in these many exploration companies and everything from site preparation and cleanup to environmental protection. First Nations understandably are gaining expertise and developing opportunities. All of those things bring certainty, clarity and opportunities.

The second part is that it improves the Government of Canada's ability to regulate oil and gas development. I mentioned the development of the regulations as the critical part of it, but if we get that right, then the Government of Canada will have the tools necessary to do the proper regulations. Right now we do not. We will get it right by working with the Indian Resource Council. The legislation will not come into force until the regulations are the way they need to be according to the consultation and work we will do with the council. Again, that will bring certainty and all the other benefits that come with it.

Finally, it will enhance environmental protection and the preservation of cultural, historic and ceremonially significant sites for First Nations.

My experience not just on oil and gas but across the country is that there is more of a balancing act, and I think a proper one, on First Nations lands where they say that certain land will never be developed at any cost. They will hold firm on no development on ceremonial or historic sites. This will enhance environmental protection.

It is a great package for the 130 or so First Nations that have opportunities. It will increase their benefits and certainty, which will increase the investment, and do it all in a better way. That is a good package with the assurance, just to repeat, that none of this goes ahead until the Indian Resource Council and the member nations are confident that the regulations are developed properly. This is a fail-safe on what I think is already a package that has been developed with extensive First Nation consultation.

The support from First Nation communities is very broad. There is some last-minute consultation by a particular First Nation. There has been an intensive amount of consultation over the last almost 10 years but really focused since 2006. I have met with the Indian Resource Council. We have helped to create an extensive consultation period and effort on their part to make sure that people understand on the technical side what the bill will do and also on the economic opportunity side. Not only are the First Nations interested in developing Indian Oil and Gas on their property but they are also asking what the potential benefits are downstream. That is why we have set up now and have encouraged these centres of excellence that will allow that kind of expertise to be part and parcel of development. First Nations that want to pursue it will be able to work through those centres of excellence to gain opportunities. Others may choose to take some other role, but the option will be theirs and the options are broadening. That is great news.

Senator Campbell: Do you have any idea when the bill will come into force? How long will these negotiations take place with regard to regulations?

Mr. Strahl: We are hoping it can be finished within a year; 2010 is the anticipated date. That is our best guess and our best effort, but again I have given that assurance that it will not come into force until those regulations are in place.

Senator Campbell: Do you know how many First Nations are in the Indian Resource Council?

Mr. Strahl: I believe that there are about 130, senator.

Senator Campbell: How many First Nations are in the independent group that expressed concerns about fiduciary responsibility, to which you spoke?

Mr. Strahl: I cannot answer that question because I do not know. It might be one or more than one. I do not have their membership list.

Senator Campbell: I want to be clear about your statement that the fiduciary responsibility and trust obligations are inherent in this bill and that if they were not inherent in this bill, then any bill brought forward and passed would require this section in it. Is that a fair statement? It is a given that it is in there.

Mr. Strahl: That is right.

Senator Campbell: Has any other bill come forward dealing with Indian and Northern Affairs that required this section to be added? Was it simply a given that this is covered under the Constitution and other bills?

Mr. Strahl: I know of no other case where it has been added to a bill in order to make it crystal clear. In our opinion, it is clear. As has been mentioned, it is the part of the bill that has not been changed from the previous bill. The intent is to ensure that it stays as is in respect of non-derogation. Nothing has changed, and I cannot think of another bill that has added it in for clarity.

Senator Campbell: What would be the effect of an amendment at this time?

Mr. Strahl: As I mentioned, negotiations preceded my time in office and this government. They go back to the previous government. Certainly, intense negotiations have taken place since 2006. You can imagine the effort and money put forward to ensure that consultations are extensive and thorough. It covers everything from clause-by-clause of the bill to technical briefings, to regulatory development, to royalty regimes to ensuring that ceremonial areas are protected. Bill C-5 was developed after these extensive consultations and meetings.

If the bill is amended, I will have to start the consultations again, and that is the trouble at this late date. I hope that does not happen. The bill has been 35 years in coming and is desperately needed, in my opinion, to maximize opportunities for First Nations. Bill C-5 is the consensus bill from all those consultations. If we amend it, I would have to take it back. It took 10 years for this last go round, and I do not know what would be involved to amend it. We would have to start an entirely new round of consultations, which would be a shame.

Senator Lang: There are some obvious concerns with respect to a number of issues that have been brought forward to this committee. I understand that such concerns were brought forward to the House of Commons committee as well.

Mr. Strahl, on the matter of fiduciary trust, I will ask you a straight question: Is the Indian Resource Council satisfied with the position brought forward in Bill C-5 that fiduciary responsibility has been met?

Mr. Strahl: Absolutely. As mentioned, clause 6 of the bill gives, in my opinion, ironclad assurances on the trust and fiduciary obligations. The language is clear that nothing will be done without the will and consent of the band or council.

People on First Nations lands can be assured that nothing in the bill changes the fiduciary responsibility of the government. It allows clarity for purposes of investment and a modernization of the regulatory regime, which has been modernized 15 times since this bill was amended. You can imagine how archaic the previous bill is compared to the modern regulatory regime on oil and gas and the opportunities that are lost because of it. It not only increases certainty and gives us the ability to regulate but also the protection of fiduciary responsibility to First Nations. There is no off- loading to provinces. It incorporates the expertise of some of the provinces. For example, Alberta has put forward great effort to ensure that its regime is nimble and able to maximize opportunities. It allows First Nations to incorporate that on their own land. It maximizes their opportunities that, unfortunately, are either lost or not available to them currently.

The bill strengthens and clarifies while ensuring that there is no change in the non-derogation clause or the fiduciary responsibility of Canada.

Senator Lang: The Indian Resource Council supports the bill. Do they believe the bill protects their trust and fiduciary responsibility?

Mr. Strahl: Yes, and that is apparent from the testimony heard before the House of Commons committee. They spoke well for themselves.

It is also important to remember that Bill C-5 provides for continual improvement. If the Indian Resource Council were to suggest that there was a change in the regulatory gap that needs be addressed, we would be able to work together to resolve the issue. We would not have to wait for a new manifestation to come along 35 years later to do so. If issues arise that can be improved along the way, then we can work closely with the Indian Resource Council to identify the problem and work together to resolve them. Such provision for continual improvement is another level of assurance for First Nations that we can incorporate better ways learned from other regimes across the country; we do not have to wait 35 years to make improvements in the future. That is a great comfort to the Indian Resource Council, who can say to their member nations that these are the best regulations available but we can improve them as necessary in the future.

Senator Lang: My next question concerns the proposed amendment brought forward by the independent lobby in respect of the vertical integration and value- added amendment. If that were to become part of the bill, would it be beyond the mandate of the current proposed legislation before us? If it were accepted, how would it delay the passage of Bill C-5? What would be the time frame?

Mr. Strahl: The bill's development was part of a lengthy and very good process. Those of us in the legislative world want a bill to pass quickly. The need for this bill was clear because the previous legislation did not allow First Nations to maximize their opportunities and did not protect the environment.

The process is important as well. The federal government understands and takes seriously the need to consult. When consultations are taking place, we not only ensure they are extensive but we have funded quite a process. There are millions of dollars of investment in a consultative process to ensure that people understand what we are trying to accomplish and for us to understand what is of primary concern to First Nations. That consultation has been extensive.

In my opinion, it is important to protect the process as well. When we say to First Nations, ``When we consult with you and when we come up with a bill that meets with your satisfaction, and we table it and proceed with it, then we want to follow through on our side because we have consulted and we have had a process that is extensive; the Indian Resource Council says we have agreed to this bill, and I then want to say that we delivered. Because you wanted it, we delivered.''

If we amend it, we will have to start the process again. I cannot expect, nor would I expect, the Indian Resource Council to say, ``We agreed to the bill, then you changed it and rammed it down our throat.'' I will not do that.

If we change it or amend it, I will have to go back to another consultative process. The problem is that the bill is what they already want so I will have to go back on a second process that is costly and timely, and opportunity is lost, in the meantime. It is unfair to First Nations who have put a lot of work into a process that has put us where we are today.

Senator Lang: My concern is the time frame. I see a bill that was introduced in the Senate and one on which I got in on the ninth inning. I see strong benefits. I think it is a non-partisan bill in many ways. We all have the same objectives. The concern I have is money, but the real concern is time.

If it were to go back through the rounds of consultation, are we talking a delay here of six months to a year?

Mr. Strahl: I do not know. The consultation and the process has brought us to a point where we have a bill that is modern and reflects our joint best efforts to develop the best possible Indian Oil and Gas regime for the country and for First Nations.

I come back to the fact that the process is also important. If we send the message back up the pipeline that the process did not work so we are back again, then I do not know what will happen. You then start over and someone says, ``Okay. If that bill is not it, then let us start again.'' Who knows how long it could take? I wish to emphasize again that the bill protects the federal fiduciary responsibilities. It brings clarity and certainty, which means opportunities for First Nations. It also gives maximum flexibility for the future because it allows for an ongoing process to improve things as time goes on.

Last, none of it will come into force until the Indian Resource Council is pleased with the regulations. It is the best possible situation.

The bill is modern; the Indian Resource Council has every opportunity to talk to the regulations; and, as we move forward, we can improve it together, as necessary. We will not be struck in this box 20 years or 30 years from now saying, ``Too bad we did not have a bill that allowed us to fix it along the way. We have lost out on millions of dollars worth of opportunity over the last 20 years or 30 years.''

The First Nations made it clear that they want to be part of a modern oil and gas industry with opportunities on everything from ownership to stewardship. This bill allows them to do all that.

I think I have to leave, unfortunately. I had a previous cabinet commitment for which I will be late, which is fine, because this is an important bill, but I can leave the next questions to my parliamentary secretary — preferably all the really tough ones.

The Acting Chair: Before you leave, minister, I want to express our appreciation to you for your presentation and for the time you have spent with us this morning. We will be very happy to carry on in your absence.

Mr. Strahl: Thank you very much. I appreciate your effort. As I mentioned earlier, the Standing Senate Committee on Aboriginal Peoples has done stellar work, as I have complemented you many times in the past. I believe you serve a special role on behalf of First Nations people but also on behalf of the whole parliamentary process. It is a unique and, as you mentioned, a non-partisan kind of role that has a lot of credibility throughout the government and throughout the First Nations circle.

I commend you on your work and look forward to your report at the end of this.

The Acting Chair: Thank you.

Senator Raine: Clause 3(2) of the bill provides that First Nation lands that contain crude bitumen, in other words, oil sands, can be excluded from the application of the bill.

Does the existing act also provide for those lands to be excluded? What are the reasons for potentially excluding First Nations lands that contain oil sands from being subject to the revised bill?

John Duncan, Parliamentary Secretary to the Minister of Indian Affairs and Northern Development: Thank you for that question. From the questioning and the responses up until now, you can see that there has been a huge commitment from all parties to this agreement to develop this bill and get it to this stage. We had some interesting committee proceedings on the house side. It seems to be continuing here in that vein.

I have never heard the question that you have asked before, Senator Raine.

I know that bitumen will be handled completely differently. It will not be handled by this particular piece of legislation. Whether or not the old act had this clause, I will have to rely on my technical colleagues here.

John Dempsey, Director, Policy, Indian Oil and Gas Canada, Indian and Northern Affairs Canada: The current Indian Oil and Gas Act does not include an exemption for mining of crude bitumen. Crude bitumen can be extracted in two ways: It can be mined or extracted through a well. We are proposing that the mining of crude bitumen would be exempted from the new Indian Oil and Gas Act and that the current extraction through a well would continue. We currently have several leases with First Nations where they are extracting crude bitumen from a standard well bore; that would continue in the future as well.

The mining process requires a much different legislative regulatory regime. There are different environmental considerations and different land tenure considerations that are not within the scope of a conventional oil and gas piece of legislation. We are proposing that it would be exempted from this bill.

If a First Nation were located in an area where there was mining of crude bitumen, we would propose that they proceed through the First Nations Commercial and Industrial Development Act. That act provides a regime for a First Nation to enter into that agreement and to proceed with that major project.

Senator Raine: In other words, this makes it clear where responsibility for mining crude bitumen lies, whereas the old act did not make it clear?

Mr. Dempsey: That is correct.

Senator Raine: I see there is a proposal, to the extent that it is practicable, reasonably efficient, safe and economic to do so, that operators employ persons who are residents on reserves. Can you explain this provision?

The minister alluded to centres of excellence. Will training in professions related to the oil and gas industry be required for First Nations people to be employed in that field? How do you see this going forward? It is an excellent thing to have in the legislation; I just do not understand how it would move forward.

Mr. Duncan: I believe that the first part of your question is responded to by the development of the regulations, which have not been developed at this point.

Senator Raine: There is an intent for that is there not?

Mr. Dempsey: There is. It is important to recognize that there is a huge First Nations component in terms of the business side of First Nations Oil and Gas. I think something in the order of one-quarter of all enterprises associated with these operations currently under First Nations ownership.

The envisioned centre for business excellence will operate in Alberta and Saskatchewan. There will be one in each province. I think it is a huge opportunity to expand entrepreneurship, skills in training and any number of other activities associated with First Nations Oil and Gas. In many ways, I think that is the most exciting part of what will come out of the progress as a consequence of this act finally being updated.

As I understand it, the terms of reference for those centres of excellence will be developed in-house. I am not sure the exact state they are in right now but I could ask Mr. Dempsey to expand on that because I know he is closer to this situation.

Mr. Dempsey: Section 54 of the Indian Oil and Gas Regulations includes the clause that you have raised about the employment of First Nations peoples. That is something that is not included in the existing Indian Oil and Gas Act but is in the regulations.

The inclusion in Bill C-5 is to ensure that we have a strong legislative footing for that. Currently, with oil and gas companies, the employment cause clause is something negotiated between a company and a First Nation. There is a requirement this be addressed. However, there is no regime around what that means.

In this amendment process, we will be working with the Indian Resource Council to try to put some meat on bones to determine what that means. What is the requirement on a company? Is this something First Nations are looking for meaningful employment through this clause or is it something where they want to open a more meaningful dialogue with oil and gas companies to address the employment side?

Senator Carstairs: I want to address the issue of royalties. Before I do that, can you tell me how many of the 130 bands that belong to the Indian Resource Council have working oil and gas wells.

Mr. Duncan: I do not know the answer to that but perhaps Mr. Dempsey does.

Mr. Dempsey: About 55 First Nations have leases with current production located in Alberta, British Columbia and Saskatchewan. I believe there is one in Manitoba, as well.

Senator Carstairs: Thank you. I also know that there are at least eight First Nations that have commenced litigation for unpaid royalties, with alleged damages estimated in the hundreds of millions of dollars. I am concerned about the relationship in terms of the collection of royalties by the federal government and the distribution.

The minister talked about markets, prices and fines, but that is not where the Aboriginal community will receive their income. They will receive their income from royalties. Is it the intention of the federal government to increase its take on those royalties?

Mr. Duncan: First, there is no government take on the royalties. The government collects the royalties and pays the royalties to the First Nations. The administrative component of that collection is all paid for by the Government of Canada. It is not passed off to the First Nations; there is no fee for doing so, which is important to recognize.

There is another piece of legislation that First Nations may opt into, which is the FNOGMMA, the First Nations Oil and Gas and Moneys Management Act, whereby they actually collect their own oil and gas royalties to the exclusion of the federal government.

It is obvious to me that this court case that went on for about 20 years dealing with the collection and investment of Indian monies — which was decided this year — has clouded the issue of adoption of this bill. That court case is now finished. It finished at the Supreme Court of Canada and was ruled seven to zero in the government's favour. The court ruled unanimously that Canada had neither the obligation nor the authority to invest Indian monies. That was the main question associated with that litigation.

Senator Carstairs: With the greatest respect, Mr. Duncan that is not exactly what the Supreme Court of Canada ruling says. It says that the federal government can, in fact, not only collect these monies but invest these monies, and it can determine, in essence, what that interest rate will be and they can unilaterally change that interest rate.

My concern is to ensure that every single penny of royalty money gets to the Aboriginal community. It is their oil and natural gas. They are entitled to every single cent of that royalty. I do not see anything within this bill that strengthens the royalty payment obligation of the federal government in terms of ensuring that they receive the maximum interest; ensuring that they have clear accountability of what that interest rate will be.

Mr. Duncan: Clearly, the bill does not deal with interest because we collect the money and we pass the money on to the First Nations.

For further clarity, I can ask Mr. Jacques or Mr. Dempsey to respond.

Mr. Dempsey: Perhaps I can add some clarity. The existing Indian and Northern Affairs Canada regulations provide for a royalty formula that is somewhere in the neighbourhood of 60 per cent royalty.

In our consultations with the First Nations over the past 10 years, it was made clear that formula is something they did not want changed at this point in time. The First Nations right now have the ability to negotiate directly all elements of a deal, including the royalty formula. First Nations right now are working with oil and gas companies to come up with their own royalty rates and formulas outside of the Indian and Northern Affairs Canada regulations.

We are in agreement that, in our discussions with First Nations, we need to look at the continuous change process the minister was speaking of somewhere down the road in the future. We need to look at updating the formula and to have that discussion. That would involve a long consultation process that we have identified with them. However, during this amendment to Bill C-5, it is not on the table to be changed at this point in First Nations.

Senator Carstairs: Can you tell me if Bill C-5 allows the provinces to tax oil and gas interests on Indian and reserve lands, and does Bill C-5 allow the provinces to take a share of the royalties on oil and gas taken from Indian reserve lands?

Mr. Duncan: I think I will ask Mr. Dempsey to respond to that. I would be very surprised if that was so.

Mr. Dempsey: No, it does not allow that. The incorporation by reference provisions in the bill are limited. They do not include the collection of royalties or land tenure provisions. It is limited to certain areas such as oil and gas conservation, the determination of pools, unitization and those types of things.

The technical side of the oil and gas business is what we are looking at incorporating by reference, and using provincial law.

Senator Carstairs: Therefore, are you telling me there is no movement that can take place as a result of this act to make to make Indian royalty regimes identical to provincial royalty regimes?

Mr. Dempsey: No, there is not. As I said, First Nations are negotiating that directly with companies now. In Alberta and Saskatchewan, those provincial royalty regimes set the benchmark. In most cases, they use that as a starting point. Oftentimes, there are other benefits that a First Nation can get through their negotiated process. They would take a multiplier of the provincial regime. It is always in addition to. To my knowledge, we have never issued a lease from Indian Oil and Gas Canada that has less than a provincial royalty regime, and that would continue.

Senator Brazeau: With respect to royalties and the issue as described by Senator Carstairs, would there not be a safeguard in the actual bill with respect to the minister having to report back to Parliament on any outstanding issues of the like, in clause 28.1 of the bill?

Mr. Duncan: That is in respect to royalties?

Senator Brazeau: As an example, yes.

Mr. Duncan: Are you talking about the clause that was amended on the house?

Senator Brazeau: Yes.

Mr. Duncan: The main intention of that amendment is that the incorporation of provincial laws by reference be kept; that, as time moves on, various provincial jurisdictions that are changing their legislation, as it affected Indian Oil and Gas properties, it would all be tracked and reported to Parliament. It is a burden that the Indian Resource Council had not anticipated but it is one that everyone accepted as a reasonable approach to things.

We do not have huge experience or history with incorporating provincial laws by reference at the federal level, but it is something that is viewed as the way things will be more and more. That seemed like a reasonable proposition.

The answer to your question is definitely, yes, that would be encompassed.

Senator Lang: I want to follow up on Senator Carstairs' line of questions on royalties. It would be a concern for all of us if we were not able to make the fair market collection of royalties and enforce those collections.

My understanding is with the requirement for audits, the requirement that the government can go back 10 years, all those various sections of the bill ensure the various companies that are doing business can be scrutinized and ensure that the First Nation in question is getting its fair share of what is being taken from its lands. Is that not correct? Perhaps you could elaborate further because this is new and is certainly one of the protections I would want if I were a member of a First Nation.

Mr. Duncan: That is a major part of the legislation because that is correct, there were opportunities under the old legislation for companies to operate in a way with either subsidiary operations or corporate connections that could have the effect of reducing royalties, so this legislation covers that off more comprehensively. Of course, the old penalties only allowed for cancellation of a lease, whereas there are many more options for bringing effect to the penalty part of this legislation. That all has to be recognized.

Mr. Jacques: As you pointed out, the auditing powers here are new, although there is auditing that is done currently on a voluntary basis. Courts have determined that there is no authority under this act to audit companies, so this was added, as you pointed out, to permit the termination of royalties, and, as Mr. Duncan has referred to, it also determined where some operations would have been at arm's length so that the royalties would not be artificially reduced.

Senator Lang: On another line of questioning concerning the employment and economic opportunities from such ventures, I want to get a comment from the parliamentary secretary. It is implicit, with this legislation coming into force, that more and more of the First Nations getting involved in the creation of companies or partnerships of companies, that they in good part would determine their programs for the training of their workers, the employment opportunities and the economic opportunities. Right now about 27 per cent have some participation at the business. It is the hope of everyone on this committee that we can see a substantial increase so subsequently those objectives will be met indirectly through the business community when they actually are in business and they can hire the people they wish to hire.

Mr. Duncan: I believe it is implicit but it goes beyond that. If First Nations Oil and Gas entrepreneurs and skilled expertise are not restricted to working on First Nations oil and gas properties, they can operate everywhere. Having the rules the same on First Nations properties and adjacent or anywhere within that operating province expedites all of those opportunities. They are already taking advantage of them and this will make it even greater. This will bring new synergy to all of that.

This is a huge, bold and correct move to be making. The longer this legislation is not in place, as I view it, is just more missed opportunity.

Senator Carstairs: Like Senator Lang, I am concerned about the auditing of companies, but I am also concerned about the auditing of the federal government, because I think the Aboriginal people have suffered more from the lack of adequate payment by the federal government than the lack of adequate payment by companies.

I want to deal with the issue of the amendments to the bills. I did not realize this bill had been amended in the House of Commons. If it had been amended in the House of Commons, what does that do to the minister's argument that you have to go back to a re-consultation process? Clearly, you did not do that; you sent that bill up to us. I am confused.

Mr. Duncan: The amendment in the house was something that affects the federal government in terms of having a requirement to report to Parliament. It is not something that would require a full round of consultation, in our view, because the obligation and onus is on us as opposed to the First Nations.

Senator Carstairs: Mr. Duncan, the proposed amendment sent to my office asks for including in the regulation the ability to promote vertical integration and value-added activities. I am pretty knowledgeable about value-added activity but I am not exactly sure what one means by ``vertical integration.''

Why would this cause such a complex matter that it would then have to go back through the whole review process? What would be added to this bill as a result of that particular phrase to cause the kind of consternation expressed by the minister today about the need for a renewed consultative process?

Mr. Duncan: I will ask for some assistance in responding to the question. Clearly, these kinds of activities bring us to areas that are not solely federal jurisdiction. I use that as a starting point because it increases the complexity of the consultative process. I will ask Mr. Dempsey to comment as well.

Mr. Dempsey: The scope of this bill is the regulation of oil and gas companies operating on First Nations reserve lands. We have always viewed the proposal regarding vertical integration as something to be dealt with in program policy. As the minister said, that is why in 2006 two centres of excellence were established between the Indian Resource Council and the government as well as between the Federation of Saskatchewan Indian Nations and the government. They were established to address economic development. As I read the proposed amendment, I sense the same problem, senator. We are not sure what ``vertical integration'' means. You would need to define the meaning and return to consultations with First Nations to determine whether they are looking for that definition. Over the years of consultation, we have found that First Nations often want government to keep its nose out of their business. They want to enter into business arrangements on their own. Syncrude Canada recently said that they had hit $1 billion in procurement with First Nations, without government oversight and intervention. They are doing that quite well with First Nations on and off reserve in the Wood Buffalo region of Alberta. We have no mandate from First Nations to proceed down that path, although it certainly has some merit. We tried to address the economic development opportunities with the Indian Resource Council directly.

The Acting Chair: Thank you, gentlemen.

Senators, we will proceed to a brief in camera discussion before resuming in public. Is there a motion to allow staff to stay?

Senator Carstairs: I so move?

The Acting Chair: Are honourable senators agreed?

Hon. Senators: Agreed.

(The committee continued in camera).


(The committee resumed in public.)

The Acting Chair: We will now return to public mode, if we could.

Senator Carstairs: I move that the meeting adjournment.

The Acting Chair: All in favour?

Hon. Senators: Agreed.

The Acting Chair: Carried.

(The committee adjourned.)