Canada: First Nations Communities And The Energy And Resource Industry: Working Together For Mutual Benefit

Last Updated: April 17 2014
Article by Michael Perron

In November 2013, the Fraser Institute estimated there are 600 major resource and energy projects worth $650 billion planned for Canada. In addition, every proposed oil and gas project in the country affects at least one First Nations community. Needless to say, First Nations communities will play a very important role in the energy and resource sector in Canada over the next few decades.

Natural gas projects in B.C., interprovincial oil pipelines (i.e., Northern Gateway, Trans Mountain and Energy East), the oilsands in northern Alberta, potash in Saskatchewan, the Ring of Fire in northern Ontario, hydro projects in Manitoba and Labrador and deep sea oil in the Arctic and Newfoundland are just a sample of major projects that impact First Nations communities in Canada.

Energy and Resource Projects Bring Risks and Benefits to First Nations Communities

From a community perspective, these projects have multiple risks and benefits. Aboriginal partnership in energy and resource projects can result in an influx of financial resources to communities and create significant economic and capacity development opportunities. A large number of these projects impact remote or rural communities that do not have traditional economic development or capacity-building opportunities that other municipalities or communities may have.

On the other hand, resource or energy projects may have a negative impact on community land and traditional territories. The decision to allow industry partners into a community to develop reserve land for economic benefit is a sensitive issue for First Nations, not unlike the decision to cut down trees in the rainforest or develop property in a national park. Every community has a different perspective on how they want to develop their lands, if at all.

From Royalties to Equity Partnerships

Traditionally, industry partnerships with First Nations communities on energy or resource projects involved a royalty payment to the community for units extracted or energy generated. These royalty payments are an unrestricted cash influx to the community. Depending on how the community uses the cash flow, there are mixed results on how impactful the economic development opportunity will be.

First Nations communities are now actively looking for more than royalty payments; they are looking for partnership and community involvement. As equity partners, they are hoping to create employment opportunities to support the project as well as capacity development opportunities for members.

Consultation Process and Other Considerations

Working with First Nations communities is much different than typical industry partnerships. First Nations communities require a due process, usually in the form of consultation, before they engage with industry. By working with communities to understand any sensitivities, political considerations and other cultural aspects, the industry proponent will have a strong foundation for potentially moving forward.

The process of formally consulting not only the community leadership, but also the individual membership, allows the industry proponent to build a strong working relationship with all levels of the community. Discussing all aspects of the projects, risks and benefits will allow the community to gain a full understanding of what they are entering into. This process is monumental in the success of any project with a First Nations community.

Evolving Government Support for Partnerships

There is federal and provincial support for improved consultation processes for First Nations communities. In Ontario, for example, the Ontario Mining Act was amended in 2013 to include a consultation process for all mining projects. The updated regulations, which include some new and changed elements, are meant to better recognize Aboriginal and treaty rights, private landowners' claims and environmental impacts in all stages of mineral extraction. The primary change to the act is that government now requires industry to have greater consultation with both Aboriginal communities and private landowners earlier in the exploration process. Claimants are required to notify both surface rights owners and Aboriginal communities potentially affected by the claim at the exploration plan and permit stage. Aboriginal communities now have the opportunity at this stage to provide comment and feedback.

Another example is the Ontario Power Authority's Feed-In Tariff (FIT) program for energy projects, which allows for an "Aboriginal adder" on top of the standard $0.135 per kWh base rate for equity partnerships with Aboriginal communities. The Aboriginal adder significantly increases project revenues and the resulting internal rate of return. In addition, it allows First Nations communities to participate as equity partners and receive annuity revenue they can use to bolster programs or services, create trust funds for future generations, and invest in economic development or capacity-building projects for membership.

As the Ontario FIT program has changed to a bid process, partnering with First Nation communities will make any proponent's bid that much more attractive when submitting to the OPA.

Community and Industry Responsibilities

To benefit from an equitable partnership, the burden falls on both the industry partner and the First Nations community. First Nations communities must define the process for any industry partners. What lands are available for development? What types of projects does the community want to engage in? What does the desired partnership structure look like for the community? These are all questions that communities must answer before engaging with industry partners. Industry partners are more receptive to communities taking a leadership role in defining the partnership, as opposed to the industry partner coming into a community and defining the relationship for them. If there is a unilateral relationship where an industry partner leads the project and the community has little to no input, this scenario can hinder the long-term relationship and have a negative impact on the project. Mutual input and shared leadership responsibility from both parties is a key driver for any project.

It is also important to ensure the partnering First Nations community has the proper governance structure to ensure their liability is limited, risk is managed and that the right people in the community are involved in the project. This will allow for a more seamless integration of the community and the industry partner in the project.

Mutual Benefits for Both Sides

From a community perspective, there are significant benefits from engaging in the right project. In addition to the long-term financial benefits of these projects, there are opportunities for capacity development that will foster community entrepreneurs to support the projects and bid for contracts they may not have been able to previously. This will create jobs in the community, generate additional revenue to Nation members and lower the dependency on crown funding. Jobs, education and sustainability opportunities for communities can change the lives of future generations.

For the industry proponent, there are numerous financial and social benefits from working with First Nations communities. Aside from developing the project, there are federal and provincial incentives to encourage long-term partnerships between industry and First Nations community

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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Michael Perron
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