Canada: Quebec Budget Stimulus For Plan Nord Implementation And Natural Resource Development

On March 20, 2012, the Quebec government unveiled its budget for fiscal 2012-2013. Focused on controlling public finances and restoring a balanced budget in 2013-2014, the budget also contains a series of measures to support the Plan Nord and natural resource development.

Plan Nord

Launched in May 2011 by the Quebec government, the Plan Nord is an ambitious sustainable development project for northern Quebec. It establishes a detailed long-term economic and social development plan for a geographic area (1.2 million km2) covering approximately 72% of Quebec's territory. The plan provides for more than C$80-billion in public and private investments over the next 25 years.

The budget speech provided Quebec Finance Minister Raymond Bachand with an opportunity to highlight a number of projects that serve the Plan Nord's objectives, and to announce institutional and budgetary measures to ensure its sustainability.

Opening up the North

Northern Quebec may seem to be an inaccessible, even hostile part of the province. Development of this vast area requires that major infrastructure be set up at the earliest stages of development.

In this context, the Minister announced the following measures:

  • There will be a focus on natural gas to stimulate the development of new mineral resource processing projects. Thus, Gaz Métro with the support of the Quebec government will undertake feasibility studies with a view to building a gas pipeline to supply the Côte-Nord region. Such a pipeline would represent an investment of approximately C$750-million.
  • The Caisse de dépôt et placement du Québec (manager of public- and private-sector pension funds) and CN (a Canadian railway company) are teaming up on a project to build a rail link between the port in Sept-Îles and the various mining projects in the Labrador Trough. If the project proceeds, it would represent a multi-billion dollar investment.
  • In 2012, Hydro-Québec will undertake studies on the extension of the power transmission grid to Nunavik, from the Complexe La Grande facility.

The Institutional Framework

When the Plan Nord was launched in 2011, the Quebec government announced the creation of a new government corporation, the Société du Plan Nord, which will be responsible for co-ordinating government funding to implement the strategic plan formulated by the government in connection with its five-year action plans relating to the Plan Nord. Two other major economic arms of the Quebec government, Hydro-Québec and Investissement Québec, were assigned important roles in their respective areas of expertise, namely the development of energy strategies and the co-ordination of public investments in private-sector projects.

In the 2012 budget, the Quebec government refined the role of Investissement Québec in the Plan Nord and in the natural resource sector generally.

Investissement Québec already controls two subsidiaries operating in the natural resources sector – SOQUEM, which is specialized in mining, and SOQUIP, which is specialized in hydrocarbons. For better co-ordination of its investment strategy in resource development companies, the government announced in the 2012-2013 budget the creation of Ressources Québec, a new Investissement Québec subsidiary. That new entity will consolidate all of Investissement Québec's current equity interests in mines and hydrocarbons, with SOQUEM and SOQUIP becoming subsidiaries of Ressources Québec. The primary role of Ressources Québec, officially constituted in April 18, 2012, will be to establish more private partnerships with private entities in the mining and hydrocarbon sectors.

Ressources Québec will be allocated over C$1-billion, of which C$500-million will be invested in equity interests in specific Plan Nord projects and the other C$500-million will be invested in projects in the Plan Nord territory. Thirteen developers have already been informed that the government is considering investing in their projects.

SOQUEM will be allocated a further C$100-million over five years for investments in mining projects.

Furthermore, the profits generated by the equity interests taken by Ressources Québec will be deposited in a new fund announced in the budget speech, Capital Mines Hydrocarbures, and reinvested in future projects.

Financial Measures

Quebec's duties, licensing and royalties regime and its tax regime with respect to natural resource exploration, development and production were historically very favorable to Canadian investors residing in Quebec and to foreign investors. However, Quebec's new political orientation, initiated some two years ago, is to collect fairer financial compensation in the form of mining duties and royalties for the use of non-renewable resources. The result is that an investor's financial model is now affected by higher exploration costs, and especially by significantly higher royalties. In addition to an exhaustive overhaul of the royalties regime as well as a new hydrocarbon licence and lease regime, the 2012-2013 budget announced the revision of mining claim registration and renewal fees to increase revenues levied by the government by 25%.

Two Quebec tax incentives, the refundable tax credit for resources and the investment tax credit, are also affected by the 2012-2013 budget. Currently, if an investor wishes to maximize the refundable tax credit for resources, the investor will have to give Ressources Québec an option to acquire an equity stake in the operation of the development project. For example, the credit for certain eligible expenses could be up to 38.75% for companies that do not operate any mineral resource or oil or gas well with government equity participation (28.75% without government equity participation). Fiscal assistance for mineral resource processing will be temporarily increased until December 31, 2017 by extending the investment tax credit to assets used to smelt or refine metals, and for hydrometallurgy.

With the measures announced in its recent budget, the Quebec government confirms its intention to make the Plan Nord a key tool of its economic and sustainable development policy for future generations. Several projects are already underway in connection with the Plan Nord and many others are slated for implementation with the imminent enactment of Bill n°. 27 respecting the Société du Plan Nord.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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