Ottawa reaches deal with N.S. over offshore revenue

The federal government has reached a deal with Nova Scotia over offshore revenue and equalization payments, Prime Minister Stephen Harper said Wednesday.

Harper made theannouncement in Ottawa with Nova Scotia Premier Rodney MacDonald at his side.

Both men hailed the deal as a significant breakthrough.

"I believe this is a historic breakthrough and a thoroughly sensible way to overcome a dispute which has bedevilled successive federal and provincial governments for over 20 years," Harper said.

MacDonald and Harper had been in a political dispute following the federal Conservatives' spring budget.

The budget offered the signatories of the Atlantic Accord Nova Scotia and Newfoundland and Labrador two options:

• The old equalization formula along with the benefits from the 2005 Atlantic Accord, which allowed the provinces to profit from their offshore oil and gas resources without fear of losing equalization money.
• A new, enriched equalization formula that included aclawback of equalization paymentsonce the province's offshore oil and gas revenuessurpass a certain level.

With its own budget due to be tabledjust days later, Nova Scotia had to make a quick choice between the two equalization arrangements.

The province opted for the new formula, but MacDonald later accused the government of breaking a promise by tearing up the province's offshore accord. He complained the budget would cost his province hundreds of millions of dollars by denying it benefits under the 2005 offshore oil and gas revenue deal.

"It has never been this government's intention that Nova Scotia, or Newfoundland for that matter, would lose benefits agreed to under the Atlantic Accord," Harper said on Wednesday.

Under the terms of the deal announced Wednesday, the federal government guarantees Nova Scotia that it will not lose any offshore royalties as a result of the changes made in the spring 2007 federal budget.

"I've always told Nova Scotians that we would not lose one red cent from the accord. Our two governments are reaffirming that today," MacDonald said.

But Harper made it clear that the provinces must choose between the two arrangements and thatthey cannotget the benefits of "stacking" theformulas.

Harper also said thetwo sides agreed to settle a long-standing dispute over offshore as it relates to what's called a Crown share.

A three-person panel will be set up to study the value of the complex cash royalty, which was part of the province's original 1985 offshore agreement. Since production started in the Nova Scotia's offshoreresource industry in the early 1990s, Ottawa has not paid the benefit to the province.

The panel is expected to report with a binding decision, which could mean a large cash payment to the province.

A day after his landslide election victory, Newfoundland and Labrador Premier Danny Williams said Nova Scotia had signed a bad deal.

Williams,whohas waged a war of words with Harper over the Atlantic Accord,saidthe prime ministerhad gottenMacDonald to take less than he would get under the accord, adding that Harper has "a way of preying on the weak."

Williams said the federal government has not lived up to what the accord promises his province and Nova Scotia in oil and gas revenues.