Strategies for Lam] Disposition and Management Resulting

STRATEGIES FOR LAM] DISPOSITION AND MANAGEMENT RESULTING

FROM PORT DEVELOPMENT PROPOSALS IN THE AREA

OF KING POINT, YUKON

July, 1986 Disclaimer

The views and opinionscontained in this document are entirely those of theauthor and should not be taken to representpolicies or positions of the Department of IndianAffairs and NorthernDevelopment, any other department or agency of the federal or territorial governments, or any otherinterest group or organization. FOREWARD I

This document was preparedunder contract from the Department of Indian I Affairsand Northern Development. The scope of the work requested coversthe factors and issuesthat would limit ordefine DIAlJD’s ability to manage thedevelopment and operation of a portin the north. I Inasmuch as thisissue has been the subject of considerablestudy over the past few years, a consciouseffort was made not to duplicatesuch work. Both thefunding level andthe deadlines for the project I precludedanything more than a briefreview of suchpast work. The purpose of thisreport was tobring together all the relevant factors and constraints - most of whichhad been identifiedin the past I - andfrom them formulaterecommendations on how DIAND mightdeal with theissue of portdevelopment on the Beaufort Shore. Legislative, regulatoryand policy options and constraints were examined along with I physical andevironmental factors. From this a series of critical issues were identified andused as thebasis for assessing the current Plonenco/Interlogdevelopment proposal. The assessnentconcluded that theproposal as presented was unacceptabledue to the area of land and I lease term requested.

The overallconclusions of thisreport however, do suggestthat DIAND I shouldsupport private sector port development on theBeaufort Shore in King Point area. Severalrecommendations are made to assist DIAND in its task of defining its role and controllingor managing the development process so as toensure all legitimateconcerns and interests are met. The recornmendations do not anticipate DIAND being directlyinvolved in theprovision and management of port facilities or I infrastructure. TABLE OF CONTENTS

SECTION -PAGE FORWORD ...... 1

I BACKGROUND ...... 1

111 POLICY CONSTRAINTS ...... 13

IV PHYSICAL AND ENVIRONMENTAL ISSUES ...... 16

V ISSUES TO BE ADDRESSED BY DIAND ...... 19

VI MANAGEMENT OPTIONS ...... 22

VI1 ASSESSMENT METHODOLOGY ...... 25

VIII ASSESSMENT OF MONENCO/INTERLOG PROPOSAL ...... 28

IX RECOMMENDATIONS ...... 32

X NEGOTIATION/IMPLEMENTATION STRATEGY ...... 37

APPENDIX I: Allocation of Common Use Facility Costs APPENDIX 11: Documents Reviewed F

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I BACKGROUND

Over the last ten to fifteen years, studies and on-site data gathering have confirmed that year round shippingin the Canadian Arctic isnot only feasible, but may in fact become a reality. There is some agreement that initial hydrocarbon production wells may have their product moved by ship until production volumes and price are sufficient to support pipeline transmission. Some of the wells in the Mackenzie delta area may have sufficient production volumes to justifya small diameter pipeline from the beginning. Significant future shipping volumes are likely to require deep draft (up to twenty meters) vessels, although medium draft (up to twelve meters) may be used initiallyor €or small volume operations. Depending on the volume of production, the cost of port facilities and other factors, medium draft vessels may be able to provide adequate levelsof service for a relatively long period of time.

Such vessels cannot currentlybe handled on a regular basis at existing port facilities in the western Arctic. Tuktoyaktuk serves as the primary operational port for western Arctic petroleum exploration activity and for resupply along the western Arctic coast.Its location in the deltaof the llackenzie River severely limits its usefulness a as medium or deep draft port. Within the harbour itself, depths range from five to twenty-two meters, which with sufficient dredging would likely permit access by medium and deep draft vessels.A far more serious limitation is the extensive, shallow continental shelf beyond the delta. Average depth of water upto 18 kilometers offshore is only six meters, making the costof constructing and maintaininga dredged approach channel up to twenty meters deep prohibitive. McKinley Bayis currently used for support to exploration in the eastern halfof the Beaufort area, and may be used to support future exploration or production in that area.

As early as 1973, in response to Alaska offshore petroleum development, and later to Canadian, offshore exploration, the Beaufortshore has been examined by governments and private corporations to identify potential medium and deep draft port locations. At least seven such studies have ' been undertaken allof which identify the King Point areaas one, if not the best, location. Herschel Island, Stokes Point and McKinley Bay have been identifiedfor short term, medium draft potential, but,as will be noted in more detail later, noneof these are appropriatefor long term deep draft operations.

Port development discussionsfor the western Beaufort have been hampered by two factors- a general lackof detailed environmental, wildliEe and geological information, and a long-standing desire in some quarters to seeas much of the Yukon north coastal wildernessas possible preserved in its natural state. There has been recognition that some development will likely be required and thatto the extent: I possible,this should be limitedto one location. King Point appears to be generallyaccepted as the most likelycandidate for this location.Figure 1 shows thelocation of KingPoint on theBeaufort Shore.

In 1978, pendingresolution of nativeland claims and thedesignation of a specificpark/wildlife area, 15,000 square miles of land was withdrawntemporarily from disposal under the Territorial Lands Act. Subsequently, a nationalpark was created west of the Babbage Riverand the Yukon Territorial Government (YTG) establishedHerschel Island as a TerritorialPark. Except for shallow/rnedium draft, linited scale, and temporarypurposes, Stokes Point and Herschel Island should no longer beconsidered for port operations and no new significantport development west of the Babbage River will be permitted.This has left King Point as the most likelyalternative for long term, deep I draftport development in theweetern Beaufort. In 1983 Monenco Limitedand Interlog Consultants Ltd. (Monenco/Interlog)proposed the development of a singlemulti-user port at KingPoint, and subsequentlyupdated and expanded the information in I mid-1985. While no final decisionhas been reached to date, earlier port developmentproposals at StokesPoint and King Point by Gulf Canada ResourcesInc. have been rejected, and a proposal by Peter I Kiewit Sons Co. Ltd. is currently onhold. Recent reductions in oil priceshave made industryofficials reluctant to predict just when major new exploration may beundertaken, or when theproduction phase couldbegin for those fields with confirmed reserves. This in turn, reducesthe pressure on theDepartment of Indianand Northern Affairs (DIAND) to commit itselfto the developments proposed for KingPoint. Notwithstanding,Plonenco/Interlog is still seeking DIAND approval of their proposal.

In view of the long standinginterest in a permanent,deep water port I on thewestern Beaufort shore, and the limitations imposed on several viable sites, it would seem reasonable for theDepartment to choose or designate a site wherefuture medium/deep draftport development can occur, if needed by theindustry. This would permit more detailed planningfor specific development options to be undertaken with the knowledge and assurancethat there would notlikely be any unreasonable delays in DIAND approvals for thenecessary leases. It seems likely thatthere will be a period of several yearsbefore final construction decisions will be made - thusgiving time toundertake additional planning and datagathering, both by proponents of portdevelopment, I DIAND and otherswith an interest in how the port will evolveand what impact it will have. It is alsolikely that a port,once established, would eventuallyplay a role in other activities such as resupply and possiblygeneral purpose export/import of goods throughthe western Arctic. -3-

I NORTH YUKON / ANDADJACENT ALASKA AND

SCALE 0. 25 so krn

BEAUFORT SEA

Mnd The ability to introduce new regulations, modify existingones and amend or introduce legislation doesof course exist. However, the review that follows concentrateson an examination of whether, and under what conditions, port development can occur without the need to adjust the legislative, regulatoryand policy frameworks that exist. The examination indicates that port developmenton the Beaufort can take place without the needfor such amendments, therefore none are proposed. The following review assumes thatDIAND would generally prefer to retain control and responsibilityfor development in the north, including port development, providing such control or responsibility is legitimately retained. II LEGISLATIVE AND REGULATORY ISSUES 4

There are several statutes and regulatory provisions that an have impact on where port development can occur on the Western Beaufort Sea I shore and others which relate to the planning and managementof projects of this size. The following comments are notan exhaustive review of all potential legislative and regulatory impacts, rather they are a summary of those impacts which require (or desire) specific conditions to be met. It should be noted that there are other general requirements embodied in legislation that may haveto be met, but which are not specifically identifiedin this discussion (for example, provisions in The Financial Administration Act). A good general discussion of the Legialation is contained in the "Port Policyfor the Canadian Arctic Coast" Kenby Beauchamp.

The most significant legislative and regulatory obligationsDIAND to are found in the Departmentof Indian Affairs and Northern Development Act, the TerritorialLands Act, the Western Arctic (Inuvialuit) Claims Settlement Act and theYukon Act, allof which are administered by DIAND. The Public Lands Grants Act, whichcan be used by DIAND as well as most other federal departments mayalso be relevant, depending on the final management and land disposition options chosen.The Public Lands Grants Act is the statute used by DIAND to authorize seabed leases.

The significant port related legislationis contained in the Canada Ports Corporation Act, the Harbour Commissions (1964), Act the Public Harbours and Port Facilities Act, all administered by Transport Canada, and the Fishing and Recreational Harbours Act, administered by the Department of Fisheries and Oceans. All of these statutes permit, among other things, the making of regulationsor by-laws concerning the development, operation and managementof ports and concerning the setting and collectionof fees for the use of ports or port facilities.

Department of Indian Affairsand Northern Development Act

This statute creates DTAND as the agency having control, management and administratton of lands, water and natural resources situated in the territories except those belonging to the territorial governments, individuals or other federal departments and agencies. The CanadaOil and Gas Act (also administered by the Ministerof Indian Affairs and Northern Development) establishes Canada's claim to,at a minimum, natural resources contained on Crownlands covered by water up to two hundred nautical miles from shore. Canada's administration of the offshore land is not as explicitly referenced a5 it is for onshore lands, therefore the dispositionof waterlots €or purposes other than the direct exploitationof natural resources is undertaken under authority of the Public Lands Grants Act and its accompanying -6-

regulations(primarily the Public Lands Leasing and Licencing I Regulations). Overseeing the actual exploratfon for oil and gas in the Arctic and elsewhere is the responsibilityof the Canada Oil and Gas Lands Administration. This agency's mandate does not directly extend to port development and operation, although there could be some overlaps if a port facility was combined with one or more production wells.

The Yukon Act and the Northwest Territories Act

These statutes createthe two Territories and define their roles, responsibilities and authorities. Within the boundaries of the two territories, land management outside established communitiesis generally the responsibilityof DIAND, particularly for land development and activities with potential environmental impacts, however the YTG plays a major and essentialrole in the planning and development of any lands in theYukon Territory.

Recently, discussions have been initiated awith view to delegate more authority and to transfer controlof certain activities from the federal government. This has led the Yukon Territorial Government in particular to begin the processof establishing or confirming its areas of interest. It has recently undertaken the developmentof a comprehensive Transportation Policyfor the Yukon, and is in the process of hiring a senior negotiation officer for the forthcoming discussions. In view of these facts, it will be essentialto ensure that the roleof the major YTG is recognized in DIAND's proposed development scenario(s) for King Point.

Territorial Lands Act

This is the key statute affecting the sale, leaseor other disposition of land within the territories. A variety of regulations have been developed to further clarify the processes and circumstances under which land or surface rights canbe acquired (the Territorial Lands Regulations), the land management philosophy (Territorial LandUse Regulations), or quarrying (the Territorial Quarrying Regulations). I Western Arctic (Inuvialuit) Claims Settlement Act

This statute authorizes the transferof certain lands and rightsto the Inuvialuit in recognitionof their aboriginal claims, createsa new national park on lands and offshore islands between the Babbage River and the Alaska border, and establishes the requirement that development proposals east of the Babbage River, excluding offshore waters mustbe subject to environmental screening and review by institutionsor processes established under this statute. Where a development includes significant potential risk to offshore harvesting activities of the Inuvialuit, the environmental screening process can be extendedto -/-

offshore areas, but it is limited in its scope to the impacton harvesting. This general exclusion of offshore water could in the t extreme, lead to a situation in whicha single development project such as a port, with breakwaters or dredged channels, would be subject to two potentially different environmental screening processes- one under this Act and one resultingfrom DOE requirements under the Environmental Assessment and Reviews Process(EARP). This situation should be avoided if atall possible. This Act ensures that the Inuvialuit will playa major role in any future developmentof lands in their settlement region.

Ports Legislation- General

The specific ports legislationis generally restricted in its application to those sites, facilities or properties under the control, management or administration of the Minister of Transport or the ' Minister of Fisheries and Oceans. While the latter, through the Fishing and Recreational Habours Act does administersome "commercial" transportation facilities, these are incidental to those provided for recreational boaters and commercial fishermen. This statute ha6no realistic application to port development at King Point.

Any development in a navigable water that consistsof structures, cables or other potential obstructionsto navigation, must be reviewed and approved by the Canadian Coast Guard under the Navigable Waters Protection Act and the,NavigableWaters Works Regulations. These deal with ensuring that navigable watersare not obstructed and if they are, that such obstructions are properly marked. These requirements are generally not difficult to meet and seldom, if ever, constitutean obstacle to development. Similarly Canada has agreed to apply Termpol, a review of port infrastructure to determine the potential pollution impacts or risks resulting from the provisionor operation of terminals. This would be undertaken regardless of which development scenario or which department managed the port development process.

The Canada Ports Corporation Act

This statute is a recently enacted(1982) update of the National Harbours Act which enabled restructuringof the National Harbours Board. Now known as the Canada Ports Corporation,it is a Crown Corporation responsible for the management and developmentof fifteen ports, most of which are Canada's largestor which serve as significant gateways for exports, imports or both. The new Act permits the creation of subsidiary Crown Corporations at specific sites, provided certain operational and financial criteria are met. The Local Port Corporations (LPC's) are then delegated a portionof the parent corporation's authorities. -8-

This provision for creating LPC's was made to reflect an intent to have a greater degree of local input, authority and,responsibility at those I ports able to operate largely on their own. The Act provides for the addition (or removal)of ports to the list of those subject to theAct if in the Minister's view, the managementof the port would be improved. Canada Ports Corporation ports are generally required to be well-established, financially viable andof national (or at least regional) significance. The ports usually contain a mix of privately-owned and operated facilities and publicly-owned and operated facilities.

Harbour Commission Act(1964)

This general statutewas passed into law in1964 to enable the creation of Harbour Commissions without theneed for an individual statute for each port. The existing individually incorporatedHarbour Cornmissions were placed underthis Act - only Toronto and Hamilton were permitted to continue their operations under their own enabling legislation. Subsequent to 1964, five additional ports have become Harbour Commissions under theAct (Port Alberni and Nanaimoin B.C. and Thunder Bay, Oshawa and Windsorin Ontario). There have been no new Commissions created since the late1960's. The Harbour Commissions differ significantly from Canada Ports Corporation ports in two- ways first, they are not Crown Corporationsas defined in the Financial Administration Act and other legislation referring to Crown Corpotations, and second, the Commissioners (similar to a Boardof Directors) are either threeor five with the federal government appointing the majority. Unless the municipalities bordering the Commission cannot agree, the minority one or two Cornmissioners are appointed by the municipality(ies). These two factors provide considerably more autonomy to the Harbours Commissions tothan Local Port Corporations and at the same time guarantee significant local input to the development and management of the port. Employees are hired by the Commission itself and are not public servants (as the Ports Canada employeesare). The Harbour Commissions Act (1964) permits a Commission$0 also administer non-federal properties on behalf of provincialor municipal governments and to hold propertiesin its own name. own its I

The statute was amended ain minor fashion when the Canada Ports Corporation was created,to include specific reference to a national ports policy and to specifically permit the Governor-in-Councilto change the typeof administration at a port or to create a Harbour Commission at any port "where there is demonstrated local interest in the management thereof and that are expected to be financially self-suff icierit.. . 'I. It is generally accepted that "local interest" consists of interest on the partof the (or all) municipal governments bordering the proposed Commission. It is exceedingly unlikely thata Harbour Commission would be considered a atlocation without a municipal government, thus itwould be inappropriate for King Point. -9-

Althoughboth the Harbour Commission Act (1964) and the Canada Ports I I Corporation Act provide that a HarbourCommission or Local Port Corporation may be created at any port,and that such a body will have significant local input to its management, there is a generally accepted limit tothis power. The Minister'sauthority to create or alter theadministration of a port is limitedto those ports over which the Minister hasauthority - thus his ability to create a Harbour Commission for example, at a port for which the Minister of Fisheries I andOceans, or the Minister of IndianAffairs and Northern Development, hasbeen granted administration, management andcontrol wouldbe difficult. The question of hisauthority to create such a body at a I privateport for which no federalMinister has responsibility is not clear, althoughthis is not a problem inthe Beaufort since the Minister of Indian Affairs andNorthern Development has been explicitly I delegatedresponsibility for federallands in the north. Section 3.1 of the Act states that "The Governor-in-Council may, on the recommendation of theMinister, by proclamationestablish a Harbour Commission forany harbour or port of Canada if theGovernor-in-Council is of theopinion that the establishment of a Commission at theharbour or port will enableimprovement of theadministration thereof." It ia important to notethe use of thephrase "for anyharbour or port of Canada".The use of "of Io ratherthan "in" implies that only those harboursor ports owned by, or in some way belonging to Canada will be considered.Privately-owned ports appear to be excluded.

PublicHarbours and Port Facilities Act

At the time of thecreation of the Canada PortsCorporation, revisions I were made tothe legislation governing the development and operation of portsand harbours managed directly by TransportCanada. Part XI1 of the CanadaShipping Act, which dealt with the creation of Public I Harbours and authorizedthe Public Harbour Regulations, was consolidatedinto the GovernmentHarbours and Piers Act which was then , renamed the PublicHarbours and Port Facilities Act. The Public HarboursRegulations and the GovernmentWharves Regulations were I authorizedunder the hew Act and remainedessentially unchanged. The Act also incorporated' the portspolicy statement and theMinister's I rightto alter theadministrative regime ofany port. Additional I regulation-makingpowers were createdalong with an authorization for theestablishment ofenforcement officers. In a relatedadministrative adjustment, full program responsibility for capital andmaintenance I funds at theseports was moved to Transport from Public Works. The statuteretained the Minister'sresidual port resonsibility - that is, theresponsibility for developing and managing porte or port facilities 'I.. . other than those that are under the control and management of .. ." I the Canada PortCorporation, a HarbourCommission, another Minister, or nottransferred to a provinceor a person. The Act alsopermits the I Governor-in-Council (on the recommendation of theMinister) to 'I... -1 0-

terminatethe application of this Act to any publicharbour, if the 1 Governor-in-Council is of theopinion that the termination will enable the improvement of theadministration of theport or facility."

The Act specificallypermits the Governor-in-Council to declare any area covered by water (andwithin the jurisdiction of Parliament)to be a PublicHarbour, and the Minister to appoint at PublicHarbours or Public Port Facilities, a Harbour Master or Wharfinger. The only restriction on suchappointments is that the person must be qualified, in theopinion of theMinister. Further, the Minister may, for such public harbours ashe designates, establish Public Harbour Advisory Councils to adviseand make recommendationsdirectly to the Minister on thedevelopment and operation of thepublic harbour. This provision assumesthe existence of one or more nearbycommunities from which the members may be drawn.

Thepowers in the Act havebeen widely misunderstoodand misinterpreted by thoseseeking to salve operational problems (such as at Tuktoyaktuk)and those seeking authorities under which port development andoperation may be controlled. The declaration of an area to be a publicharbour is a relativelysimple exercise, although it hasbeen several years since any new publicharbours have been declared. TransportCanada does not have any approved policy on thedeclaration of publicharbours, nor any consistent ratianale for suchaction. A draft Departmentaldiscussion paper suggests three possible reasons: safety(as in thecontrol of ship movement withinthe harbour), management (topermit appointment of a Harbour Master), andrevenue. Some of the most recentdeclarations (such as Nanisivik, N.W.T.; and Nanticoke,Ontario) appear to have been primarilymotivated by the revenue potential from HarborDues.

The declaration of a publicharbour initially only defines the geographic area overwhich the Public Harbour Regulations can be applied. The GovernmentWharves Regulation8have not been amended to permittheir application within a publicharbour. The Public Harbour Regulationscurrently (and traditionally) only dealwith issues on the surface of the water no propertyrights ownershipissues arise. - or I As theregulations exist, they cannot be usedto control development withinthe harbours or to limit vesseloperations except to such matters as speed,manoeuvering within channels, etc. The revised Act doespermit much more detailedregulation making, but these authorities haveyet to be exercised.There is some question a8 to how effective suchregulations wouldbe in controlling private development on privatelyheld or leasedland within the harbour. A much morecomplex questionrelating to the enforcement of theregulations exists. As written,the Act canonly be enforced by localenforcement officers to whom the Act grants powersexceeding those available to most police agencies. This provision was introduced to thestatute during a period -1 1- when it was hoped that all ports would be managed under one authority , since provision hadto be made to permit port 'police that existed at several of the larger ports to continue. Until the enforcement officer concept was introduced, the regulations were administered by Harbour Masters, Wharfingers and Departmental employees. Since the Act came into effect in1982, no permanent enforcement officerhas been appointed and Harbour Masters and Wharfingers simply collect revenue, advise users of regulations and report any contravention of regulations.

A more serious limitation on the ofuse Public Harbour declaration aas management tool or as a means to control port development is that Harbor Masters and Wharfingers are fees-of-office appointees. They are not employees, or public servants. They are appointed personally by the Minister, serve at his pleasure, and are legally accountable only to him - not: to departmental officials. They do not receive a salary, but are instead permitted to retaina small portion of the fees they collect in lieu of remuneration. They do not have the authority to enforce regulations. Where administrative or management difficulties arise with port users, tenants or local interest groups,a regional Departmental official is required to resolve the issue. Fees-of-office appointees generally haveno responsibility for lessees or for administering leases. They deal primarily with the transient users of the port.

Summary of Legislative,andRegulatory Issues

The rights and obligations in various statutes guarantee theYTG and the Inuvialuit significant inputto any planning and development activity on theYukon Beaufort shore. DIAND must observe the planning processes in place for the developmentof territorial lands; particularly those related to land use planning; specifically, the provisions of the Territorial Land Use Regulations, the and agreements with YTG, and the affected nativegroups regarding federal Northern Land Use Policy. Where the necessary commission, committeesor planning teams have not yet been created, they should be, or temporary arrangements made to ensure the intentof the processes is met. I In view of the past practiceof the Department, waterlot leases should continue to be made under thePublic Lands Grants Act, and land use permits should continue to be used where the activities proposed are temporary, or incidental to some other activity (such as construction of a road).

The Western Arctic (Inuvialuit) Claims Settlement Act has constrained the port development options by recommending the reservationof a significant area of land for National and Territorial parks, within which port development would be prohibitedor severely limited in "I"'"" -12-

in scope. It has further potentially complicated the decision-making I process by requiring certain development proposals to be subject to special environmental screening and reviews. For consistency, the entire port development process should be treated a asunit and be subject to a single environmental screening process.

The ports legislation administeredby Transport Canada is potentially useful as a tool to resolve the management issues surroundig port development at: King Point, but there are two criteria that bemust met, either of which is likely to be undesirable or unacceptable DIAND. to First, for the Minister of Transport to properly apply certainof the port legislation, the administration, management and controlof the federal property (waterlotaas a minimum and ideally, the upland required for infrastructure) should be transferred to the Minister of Transport. It is likely that there would be areasof overlapping responsibility between DIAND and Transport Canada under sucha transfer, thus, if possible, it should be avoided. The (ports legislation administered byTransport (particularly the PublicHarbours and Port Facilities Act) only grants the Minister explicit authority over public harbours and certain port facilities,Port facilities are defined to be 'I... any wharf, pier, breakwateror other work or installation located in, on or adjacent to navigable waters, and including any land to which itis attached." This would appearto exclude any propertiesor facilities away from the wateror not directly supporting the port infrastructure. Therefore, DIAND would likely have to manage the remaining upland property. Second, the extent to which Transport Canada would be able to effectlvely deal with northern issues, native concern8, the Western Arctic (Inuvialuit) Claims Settlement Act, the past practices, policies and expectations surrounding the development of land in the north is not clear.

I I 111 POLICY CONSTRAINTS Policy constraints are those aspects of departmental objectives, preferences or actions that can affect a decision such as the decision I to permit or not permit the Monenco/Interlog proposalto proceed. They may be based on specific government policiesor objectives, on a Departmental interpretationof such statements, on specific (usually 1 additional) policies or Objectives within a Department,on interpretations of legislation,on past practices oron political or administrative needs. It should be recognized that while most I Departmental policyis documented in statements or even manuals, there is a significant amountof policy that is not. The policy may be unwritten because: It:is long established, well known and accepted; or because it representsa subject in transition (often witha proposed I policy or a discussion paper outlining whatis hoped to be approved as policy); or because the issue arises so infrequently that every case is examined individually, or becausea declsion has been made not to draw I attention to an issueby formalizing a policy. Within any individual department, thereis usually no major confusion I or difficulty generated from vague or unwritten policies. The major problem arises in situations requiringa decision based on an assessment of another department's position on an issue (a position determined by or affected by all departmental policies and objectives, 1 including those that have not been formalized). Such problemsarise in situations where more than one department be may involved in a project or activity and where an outside proponent may have to deal with more I than one agency with its project. The evaluationof the Monenco/Interlog proposal and the larger question of port development and management both have such interdepartmental considerations.

1 For the purposes of this analysis, it is accepted that all departmental policies and objectives that apply, will be ormet observed as I necessary, whether they areformal or informal. The first policy issue that must be consideredis which federal department, agency or other organization shrruld be responsibile for I I managing the developmentof northern ports in general and King Point in particular. The result of this assessment will determine which agency should the be accountablefor approving or controlling the future 1 operation of the Eacilities. While there are several federal departments withmajor interests and responsibilies in the north, the matterof port development and 1 operation could reasonably be assignedto DIANLI or Transport Canada. Both have adequate legislative authority, and both have related expertise - DIAND in the needs and problems associated with the north I in generaland with conflicts between development needs and preservation of thewilderness; and Transport (both in the Department and its agencies)in the development and operqtion of ports,port facilities, and airports.

DIAND's internal policies tend to promote privatesector development andoperation while those in Transport generally assume significant publicsector development and operation, even though there are many privatefacilities at Transport Canada portsand airports. Transport Canada'sgeneral reaction Eo purely private facilities or ports is to permit them todevelop as they wish, whetherthey are single user (like Nanticoke,Ontario) or serve several ugers (as in Port Cartier, Quebec) or are operated by a provincialor municipal body (such as ferries in Newfoundland or the port of Valleyfield, Quebec,run by a municipal corporation).

The Transport Canada portslegislation generally assumes that the Minister of Transporthas the control, management andadministration of theproperty (or at least theFederal Crown Property)w2thin a harbour orport, even though the statutes permit the Minister to alter the administrativeregime at a port or todeclare an area to be a public harbour. The policy implied is that the affectedfederal properties would likely need to be transferred from DIAND toTransport before Transport would acceptresponsibility for developing a port.Without specificpublic facilities (provided by Transport),the Department's approach to portdevelopment would likely be that of a lessor - leasing thenecessary properties to private developers for theiruse. Although there is no Departmentalpolicy relating to the provision or development o€ associatedupland properties, Transport traditionally expectsthat to be undertaken by theprivate sector. At most Departmentally-runporta, there is very little, if any associated backupland and facilities.

Threefurther complicating issues are affected by unofficialpolicies: thedeclaration of areas to be PublicHarbours; the classification of Arctic Ports; and thetransfer of a port from one administrativeregime toanother. There is no policy on thedeclaration of PublicHarbours, although a discussion paper on the issue has been circulating for two or threeyears. Thus' theDepartment heis no, consistentrationale for decidingthat a specific area should be a PublicHarbour. Similarly, a discussion paper proposing an Arctic Port Classification System has beencirculating in which sires would "qualify" for certain facilities, equipmentand staff, depending on suchfactors as traffic levels, sealiftactivity, population, etc. The rationalebehind permitting the Minister to move a port from Departmentaladministration, Local Port Corporationor Harbour Commission status to any of theothers, was basedon two assumptions. First,that ports, as theydevelop can become capable of supportingtheir operations from revenue,and they can"graduate" to an administrative regime that provides more freedom, localinput, etc. Second,that the Minister would make such adjustmentsbetween ports under his control at therequest of thelocal community. DIAND's past experience in permitting port developments at Tuktoyaktuk, 1 McKinley Bay and Herschel Island have been reasonably successful, notwithstanding some problems that arose concerning the day-to-day operation of Tuk harbour and the potential difficulty in accommodating new users at McKinley Bay. The experience gained from these operations I and the assessment (and subsequent rejection)of other port development proposals has strengthenedDIAND's ability to consider and address diverse and often competing northern needa. The developmentof a I Seabed Leaslng Policy has further clarified the issuesDIAND sees as important and providesan explanation of the factors thatwill be considered in granting seabed leases for port development. The use of 1 the Seabed Leasing Policy, the Public Lands Grants Act and the Public Lands Leasingand Licensing Regulationsin conjunction with the Territorial Land UseRegulations and the Territorial Land Regulations may be seen to be more awkward and perhaps less responsive to port I development than the Transport Canada legislation. However, the combination is more comprehensive than the ports legislation Is and consistent with the past private development framework used in the I north, for example,in permitting development of mines with "publlc" or multi-user ancillaries suchas roads.

Although the King Polnt projectis port development it is primarily a private sector proposal to serve private sector users, therefore, internal policles suggest that it wouldbe better administered by DIAND - at least until such time as federally-funded public facilitiesare contemplated, or the government decides to take over day-to-day management of the port. As a privately developed and operated facility, the fundamental government role will be thatof lessor, ensuring government Interests, objectivesand priorities are considered. The role is not that of a port developer/operator. Therefore, DIAND is the proper lead departmentfor the development.

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I IV PHYSICAL AND ENVIRONMENTAL ISSUES Although considerable work has been undertaken to support preliminary site selection, there are still some factors which require additional I atudy, such as sedimentation of dredged channels, near shore ice conditions, dredgeability of certain sediments, stabilityof submarine trench slopes, foundation conditions (bothon and offshore) and the I impact of altering the lagoon either by dredging or backfilling,for example. All are assumed to be resolvable with appropriate engineering 1 design. The most recent soils workis contained in the M.J. O'Connor and Associates study entitled Investigationof Subsurface Conditions at King Point Yukon Territory, April1986. The study was undertaken to I acquire sufficient data to evaluate the potential impactsof port development at King Point. It examined the subsurface soil conditions both onshore and offshore in the vicinity King of Point by examining previous soils work and by undertaking additional samples. The analysis includes data on43 test holes anda brief review of the six port development scenarios proposed to date (Kiewit PhaseI and Phase I 11, Dome Short Term andLong Term, and Monenco/Interlog Phase1 and Phase 11). The study found that "the development of the King Point area as a multi-user port facility and/ora base for quarrying operations is considered to be generally feasible...". This conclusion I waa qualified slightly, in that potential problems such as those noted above, relating to sedimentation and subsurface geology were identified. As planning for port development proceeds beyond the I conceptual stage, these issueswill have to be addressed.

With potential developmenton the Beaufort Shore limited to areas east I of the Babbage River, the distanceto deep water becomes majora constraining factor (see Figure2). The -20 meter isobath comes closest to shore (approximately2.4 kilometers) at King Point, before it turns northward along the edge of the Mackenzie Trough. Deep water I access within three kllometersof shore is only possible to about three kilometers west of Sabine Point. Although it is possible to dredge longer distances, or to builda causeway, the increasingly acute angle I I to the shore combined with a predominantly west to east longshore current suggest that progessively more serious sedimentation problems will occur the further east a port is located. A significant additional geological factoris the unstable ice-rich cliffs between I Kay Point and King Point.A port development not only needs adequate upland, it needs relatively stable upland. It has been recommended that major development avoid the cliff erosion areas. The sites where I the impact of cliff erosion is minimal are the Barrier Beachesat King Point and the unnamed drowned valley eastof King Point. A final factor that should be takeninto account in locating a portIs the I distance from the proposed Kiewit quarry site.The King Point to Sabine Point areais closest. -17-

King Point Bathymetry

I 1 1 I I I Kilometers I I Figure 2. -18-

There have been few serious or majorenvironrnental/ecological I constraints or impacts identified in the environmental assessments and other studies that have considered or included King Point. Thereare concerns related to long causeways/breakwaters and their impactfish on and marine mammal movement along shore, but the data to date suggest relatively minor disruptions can be expected. Port, airport and quarry development at King Pointor in its vicinity may havea minor impact on a portion of the Porcupine caribou herd since some membersof the herd have been spotted nearby (southof King Point). This appears to be an infrequent occurrance affecting a'very small part of the herd. The closer development is kept to the shore, the more likely the herd will not be affected. Only minor and infrequent impact is anticipated on other flora and fauna, with the possible exceptionsof bowhead whales and migratory birds, particularly whistling swans, snow geese and dabbling ducks. David Livingstone in "King Point and the Northeast Yukon: Development Within a Conservation Frameworkn (March,1986) concludes on page232, that with respect to birds "Distufbance associated with industrial developmentat King Point- loss or degradation of habitat, direct mortality, noise and human activities would be widespread and could seriously disrupt feeding, nesting, rearing and staging activitiesof moat species in the area." Elsewhere, (page 81) in discussing general environmental impacts, he states that "in counterbalance, one should remember that King the Point area itself does not appear to offer particularly significant habitat for most species", and on page127 that "the applicationof the mitigative measures proposed above should limit impacts associated wtih a quarry and harbour atKing Point to acceptable levels". It is clear that additional baseline data must be collected before unambiguous conclusions can be drawn. Summary

The physical and environmental issuesor constraints associated with development of King Point appear to be addressable, based on the (limited) data currently available and considering that development plans to date have been only conceptual. It is important to note that while the individual impacts on species,or'from specific portions of a I project may not cause major problems, the cumulative effectof all the related development may be more serious. The bathymetryof the area significantly reduces the desirabilityof port development east of Sabine Point, which, when coneidered with the constraintsimposed west of Kay Point and between Kay Point and King Point,leaves a length of coastline of perhaps 8-10 kilometers starting just westof King Point and ending just westof Sabine Pointas the only realistic option for long term deep water port development.The exact location and extent of development will not be known until more detailed planningis undertaken, but King Point appears to bemost the appropriate choice. In the interim, all opportunities should be taken to supplement current data on the environmental, climatic and physical regime.

Sypher Consultants Inc. 130 Stater Street, telephone Management Consultants Suite 615 (613) 563-1602 in Transportation Ottawa, Canada. I K1 P 6E2 -1 9-

V ISSUES TO BE ADDRESSED BY DIAND

The issuesDIAND must address are those over whichIt has some measure of control or choice. Those over which ithas no control must be accepted as constraints. The issues to be addressed are discussed below.

A. Should DIAND control development or should this responsibility be transferred (or shared)?

The fact that the proposed port facility will be inYukon the Territory and willat least initially, serve the local (Beaufort Sea) needs as opposed to primarily importing or exporting commodities for redistribution, suggests that the port wouldbe not considered part of a transportation network orsystem as contemplated in Transport Canada's objectives. Its importance to the Beaufort Sea exploration and production operation& providesa solid argument for control remaining withDIAND. The potential for further development onshore as a result of the port operation also suggests control should remainwith DIAND for consistency. The most likely government role- that of lessor, not port operator- also suggests control should remain withDIAND. DIANU's responsibility recognizes the interests, needs and majorrole of the Yukon Territorial Government, the Inuvialuit and the Councilof Yukon Indians (CYI). Transferring control of development to the YTG would be technically feasible, but currently facestwo potential problems: the YTG does not have jurisdictionover offshore lands; and in the longer term a King portPoint would likely become more general - purpose, serving regional needs, including parts of the Northwest Territories. Such facilities would generally be controlled or managed federally as opposedto provincially or territorially.

B. Should development be focussed at King Pointor some other location?

The elimination of properties west of tHe Babbage River for long term development, combined with the physical contraints Imposed by the bathymetry eastof Sabine Point effectively limits potential development to a small area centredon King Point. In view of the numerous studies that have identified King Pointas one of the most desirable port development locations,DIAND should officially adopt the position that long term, deep draft port facilities, if needed, will be developedat King Point. This will enable the Department as well as all concernedto concentrate efforts on the detailed planning and data gatheringthat will be necessary to produce specific plans.

Sypher Consultants Inc. 130 Slater Street, telephone Management Consultants Suite 615, (613)563-1602 in Transportation Ottawa, Canada. I Kl P 6E2 C. How shouldproperty be allocated? ! This is potentiallythe most difficultissue to address since the timingand the amount of propertyto be made availablecan dramaticallyinfluence the scale of portdevelopment and the ability to expand to meet futureneeds. Theamount of propertyput under thecontrol of a developer will determinethe degree to which a monopoly situation is createdor encouraged.

D. To whom and for how long shouldproperty be allocated?

Closelyrelated to C, thisquestion requires careful consideration to ensurethat undue restrictions (or advantages) are notcreated. The fundamentalprinciple to be followedshould be that properties be leased as requiredfor specific development, with strict time frames on the start andcompletion of thefacilities and furthermorethat leases shouldbe for the minimum feasible term. Developmentshould follow an approved master planto ensure orderly development and to guaranteethe input of interested parties such as the YTG, theInuvialuit and the CYI.

E. How shouldcosts of common-use facilitiesbe shared?

Such costs(dredged channel, for example) pose no difficulty so long as theport is beingoperated as a multi-userfacility. The costs will be incorporatedin the service charges established by theoperator. In theevent that another operator wishes to establish its own exclusive-usefacility (wharf and warehouse for example), it shouldbe left to the two partiesto determine a fair and reasonablesharing of common-use facilitiesprovided by the initialoperator. Onlywhere such agreement cannot be reached should DIAND permititself to become involved in resolvingthe dispute. DIAND shouldestablish a methodology for suchresolution that is clearlyfair, but is at the same time sufficiently undesirablethat resolution between the individuals is encouraged.

F. Shouldthe government participate financially in theproject?

The greaterthe contribution by othersto the project, either by theprovision of some facilities or by cash,the lower therisk thatthe developer mustface. Inasmuch as nofirm commitments have been receivedfrom the potential users, and forecast petroleum production is beingpushed further into the future, DIAND should minimize its involvement in thefinancing of theproject. Contributions from the YTG or fromother Departments such as DRIE, will of course be a function of their mandateand objectives.

Sypher Consultants Inc. 130 Slater Street, tele hone Management Consultants Suite 615. (el& 563-1602 in Transportation Ottawa, Canada. K1 P 6E2 -2 1-

G. Should DID participate in theongoing future management of the I port? As withfinancial contributions, the greater DIAND's role(or the role of others)in the management of theport, the greater is the I likelihoodthat such involvement could be seen to contribute to the failure of theventure (should it fail). Thiscould leave such participantsin a postion of liabilityfor some of the losses. As withthe sharing of thecost of common facilities, DIAND's managementof theport should be seen as a "last resort"which whilefair, wouldbe undesirableto the developer. The developer will thenbe encouraged to ensurethat the interests of all parties involvedin or affected by the development are consideredin a fair andequitable fashion. DIAND may wish to establish a small advisorycommittee to ensurethat concerns of interestedparties I are voicedand resolved.

H. How shouldfuture commitments created by thedevelopdent be I handled (for example,maintenance dredging, placement of navigation aids, etc.)?

I It is essentialthat the implications of all aspects of the development,regardless of who undertakes them, are fully identified andprovided for. The planningstage must therefore includethe participation of agenciessuch as theCanadian Coast Guardand the Tranaport Canada Airports and Civil AviationGroups toensure that their standards and requirements (if any) are met. Similarly, if thedesign of a breakwater/causewayincludes openings I toenable fish and mammals to pass, It may be necessaryto provide formonitoring of theeffectiveness of such a design. As thelead Departmentresponsible for land use and development, DIAND should ensurethat such implications are in factconsidered. DIAND may wish to designatean official to coordinatesuch input and to ensure that -al1,government concerns are addressed in the planning I stages. As thebrief discussions indicate, the iaaueabegin to resolve themselves,or at least suggestpositions td betaken as thequestions are answeredsequentally. A number of relatedissues such as the nature andtiming of Inuvialuit or Territorial GovernmentInvolvement, havenot been raised as specificissues because the methodof handling I them is clearly defined in DIAND legislation or policy. I I -2 2-

! VI MANAGEMENT OPTIONS

In order to fairly and effectively assess current and futureport developmentproposals, the primary issues and constraints identified in I sections I1 to V mustbe addressed,and, there are a number of ways in which thiscan be done. The firststep that must be taken in orderto simplifythe problem is to summarize DIAND's roleoptions, which are:

1. undertake all development itself;

2. transfercontrol of theproperty to Transport Canadaand permit thatDepartment to develop and manage theport; I 3. sharedevelopment with the private sector; and 4. permitand encourage the private sector to undertake all developmentand subsequent management.

The first option is clearlyallowable under the Departmental mandate and legislativeauthority. It providesthe greatest degree of control I tothe Department and enables DIAND toensure full and complete consultationwith the territorial government, the Inuvialuit and other interestgroups. It alsoprovides the maximum flexibilityfor both short term andlong term managment of thefacilities (they could be I leased,run directly by the Department,run by advisorycommittee, etc.). Thisoption is alsothe simplest to administer. On the negativeside, the general policy objectives of the government include I encouragingprivate sector operations andreducing the level of governmentinvolvement inoperations which could (or should)be developedin the market place. It is the mostexpensive (from a Departmentalperspective) option. It would requireextensive negotiationand detailed planning with potential users and operators of thefacilities. DIAND's limitedexperience in port development and operationcould put it at a distinctdisadvantage in this process. Finally,such direct 'involvement would likely be seento overlap the portdevelopment and 'management responsibilities of theMinister of Transportsince the expenditure of publicfunds would be requiredto I providethe infrastructure. The secondoption permits port development and management to be undertakenwithin a Departmentwhich has specific expertise in port I developmentand operation. The legislative and policy issues suggest that such responsibility would notbe acceptable to Transport Canada withoutthe transfer of administration, managementand controlof the waterlots and likely some of thenecessary upland. The developmentand management of an airport would also fit clearly within Transport's mandate,although the new Air Groupcomponent appearsto now have more flexibilityin carrying out its mandate. It would probablynot be -23-

for necessary to transfer land management the airport site to ! Transport. While this is a technically feasitile solution, there are several negative impacts. First, the Transport Marine Group generally does not manage major areasof upland property associated with ports. DIAND could easily be faced with managing all properties relatedto the port/airport developments such asroads, quarries and so on. The status of assurances to the Inuvialuit and others, that currently exist providing for input to the management, development or useof northern lands is uncertain under a scenarioin which the management and control of land is transferred to another Minister. Another Minister would clearly conduct his responsibilities within the obligations imposedby the statutes, but the priority or depthof understanding of some of the requirements may not be as greatas with DIAND. Monitoring DIAND's commitment as implemented by another Department would be a complex and sensitive matter. Developers, users or lessees could find themselves dealing with two Departmentsin the event they havea quarry and a wharf for example. It is unlikely that Transport Canada's port and airport development priorities would coincide with those'of DIAND or of potential users of the facilities. Transport's priority lies with ensuring the development and operationof a network of ports and airports to serve the greatest common good. It generally has little involvement with private facilities. DIAND's priority to ensure adequate and orderly development and use of northern landsis more receptive to the needs of remote northern communities and users.

The third option (sharing development with the private sector)is also feasible under current legislation and policies and has the advantage of recognizing that thereare common use and exclusive use components to port development. DIAND's role could range from minor (such as additional studies on sedimentation, dredging, foundation,and environmental impacts) to major (actually providing the common use infrastructure such as dredged channels, turning basin, breakwaters, roads, runways, water/sewage/garbage/utilities etc.). Participation of this sort would enableDIAND to control the timing, scale and location of development while at the same time encourage private development. It would also enable the Department to ensureall necessary consultations and studies were undertaken prior to development I proceeding, since the majority ofthe Department's contribution would have to be "up front" or earlier than thatof the private sector. There is considerable risk that such up front investment might not be followed by the private sector investment as originally planned. This option may also be seento have DIAND in a position of operating under Transport's mandate in that public funds would be used to provide certain of the infrastructure.

The fourth option (total private sector development)feasible is within the legislative and policy framework under whichDIANL) operates. It has the added advantages that:DIAND's financial involvement (and risk) is minimized; that it is the most consistent with current government policy and objectives relating to greater involvementof the private -24-

sector;and minimizes publicsector control and"red tape". The option I can, if not carefullyimplemented, create a mohopoly situationwhich ! could be seento exploit users. It does not automaticallyprovide for inputor advice by ueers,government or otherinterested parties, Both of theseproblems can be addressed(for example, with adequate safeguardsproviding for other future users, and with an advisory/consultativeprocess managed by DIAND). Similarlyconditions of public access andgovernment use of facilities wouldhave to be specifically addressed or negotiated.

In spite of the potential difficulties associated with the fourth I option, it generatesthe fewest difficulties and problems. DIAND must, however,include appropriate safeguards and conditions on the developmentand operation of the portand its relatedfacilities to ensurethat the potential difflculties can be minimized, or specificallyaddressed in the lease(s), I

I I

I I I

I I -25-

VI1 ASSESSMENT METHODOLOGY

The discussion of legislative, regulatory and policy requirementshas broadly set the stage upon which the Monenco/Interlog proposal, and its ultimate operations, must play. The Kiewit proposal could also be assessed against these criteria, but because its status is less certain, it will not at this time be assessed. Since there are no definable phases or levels of service, it is really only necessary to determine how well the Monenco/Interlog proposal fits within the frameworkof constraints and requirements that have been identified and whetheror not the proposal is consistent with whatis required. Therefore, it will be examined against five issues thatare essential to the framework of constraints and requirements. These are:

1. Type of development proposed

It is generally accepted thata single purpose/single user development is less desirable than one whichcan meet the needs of several users,or one in which several users can have their own separate developments. Any proposal which requires the creation of a monoploy, or an exclusive long term rightto be sole developer, is less desirable than one in which multiple developments can be permitted. A proposal which providesa single purpose facility is less desirable than one which proposes a comprehensive or multi-purpose facility. Finally, the proponent's understanding of the complexity of such a project can be judged, to a certain extent, bythe scope and cost of the project. One which is well thought out with realistic provision for future growth and expansionmore is desirable than proposinga single "once and for all" development. Realistic costing of the project, considering the uncertainty surrounding the geology of the area, sedimentation rates and even the numberof potential users, is difficult, but can be judged in comparison to previous proposalsor current projects elsewhere in the north.

2. Type and extent of tenure required

The tenure requested isa key issue affecting any proposal. For this review, the typeof tenure required, whether lease, licence or permit, aswell asthe length of time such tenureis required, will be considered. When reviewing a lease term, a twenty year lease with a twenty year renewalis essentially the sameas a forty year commitment. In general, shorter lease terns will be more attractive to a lessor than longerones, and terms that can be approved wlthinDIAND's delegated authority will normally be more desirable toDIAND than those requiring Treasury Board -26-

approval.This would enable DIAND to remain incontrol of the entireleasing process, and should enable faster approvalsto be made.The area of landdesired will affect DIAND's willingness to commit it fordevelopment. A proposal to lease onlythat amountof landrequired for immediateneeds will bemore attractiveto the lessor than one requestingextensive land unrelated to currentneeds. While both area and term are key negotiablesIn any proposal,the assessment of the MonencoIInterlogproposal will bebased on theirrequested area and term.

3. Timingand user commitment

A decision to permitspecific development will be affected by boththe timing proposed and theextent to which the proponent (and his potentialcustomers) are preparedto commit themselves tothe project. They bothindicate the degree of confidence each parry hasIn the feaaibility and futureoperation of the facility. A projectwith evidence of strong commitment by the proponent (e.g. thespendlng of fundsto prepare plans and specifications,or the active planning or marketing of the proposal, even at a conceptualstage), and by theusers (e.g. a letter of intentto use such facilities or a requestfor services) will bemore desirablethan one which is beingheavily promoted by theproponents, but which has relatively little time, money and effortinvolved. DIAND should feel comfortable that what is beingproposed is bothneeded and adequate for users ' purposes.

4. Typeand value of federal (or othergovernment) assistance required

Any proposalwhich will be conditional on federal or provinciallterritorialfunding, grants, loans or contributions, whethercash or in kind, will be lesa attractivethan one that will be built,entirely from privateresources. Prior to finalizingapprovals, DIAND shouldensure that the proponents have disclosed the full extent of government participationthat is anticipated.

5.Type of management proposed

The ultimate succe~aor failure of a major developmentsuch a8 a port will depend as much on its management as onany other factor. A management team knowledgeable in such matters, with specific past experience,and with enough flexibility to accommodate a variety of approaches,situations or problems is much more attractive than onewithout these factors. -27 -

The Monenco/Interlogproposal does address al1,of these issues, thus these factors are considered to be sufficient to suggest to DIAND whether it shouldpermit the development as proposed,or in some modified form, or to reject it entirely. -28-

VI11 ASSESSMENT OF MONENCO/INTERLOGPROPOS& !

A number of different assessment methodologies are available, ranging from numercial ranking to special review committees.For the purposes of this exercise, the proposalwill be examined against five criteria or characteristics which have beenshown to be components of the issues facing DIAND inits role as manager of land use and development in the north. The extent to which the proposal addresses the basic issues related to the concerns or meets the constraints and obligations faced by DIAND will be identified and a general conclusion relatingto the criteria will be stated. The five conclusions willbe discussed collectively and an overall recommendation concerning the proposal will be made.

Type of Development Proposed

Monenco/Interlog propose the developmentof a multi-useradeep water port and exploration base at King Point to serve the of needs Canadian and American exploration firmsin their future offshore exploration programs and in the longer term, in their construction and operationof production wells. The proposal further requests thata 64 square kilometer development zone for port and airport construction be established. The firm anticipatesan exclusive use area, as evidenced by their request to lease the entire 64 square kilometer development area. While it ie clearly their intent to provide facilities and services to all potential usera, it would appear theydo not anticipate independent shared useof the area (for example, Gulf or Done constructing its own wharf and storage facilities and sharing the channel, turning basin and other common facillties). The proposed development is comprehensive in that Monenco/Interlog are preparedto serve all interested users, and they planto construct or provide roads, utilities, offices, accommodation, airport and other facilities that would be required.

The cost of the proposal is estimated at $95.7 million 1983 dollars, allocated as follows:, I Civil Engineering $52 -9 Site Survey (Environmental) 1.5 Utilities/Communications 8.4 Airport 16.1 Power Plant 3 *O Ancillary Structures 12.2 Other -1.6 Total $95.7

Although not formally specified, it appears that this represents the Phase I coats only.' The coats are not brokendown by phase or by detailed project (e.g. dredging, wharf, runways, roads,etc.), therefore, it is dlfficult to determine with any confidence whether or ! not they are reasonable estimatea. So long as the proponents provide all financing, this problem is relatively minor.It must also be borne in mind that the estimatesare based on conceptualrather than specific I plans. The impact of the proposal on other ports or transportation systems does not appear to have been considered in detail. The proponentsdo I state (but provideno supporting evidence) that the current transportation methods (air, barges, shallow draft supply vessels) and ports (Tuktoyaktuk, McKinley Bay,etc.) would be inadequateto handle I commodity movements associated with full scale productionof petroleum products from the Beaufort Sea fields, but the interaction betweena I King Point port and the existing facilitiesin the interim is ignored. The proposed development seemsto be generally acceptable, as to location, multi-user concept, provisionof a comprehensive port/airport operation and the suggestion of a fairly large "development zone". The I request for exclusive occupancyof the zone could cause problems. The cost estimates require considerable refinement and more detail. The specifics of Phase 1 and the proposed future phases (including timing) I need clarification. I Type and Extentof Tenure The proposal requestsa 99 year lease of the entire 64 square kilometer development zone and "permission to develop access to the port through a dredged entrance.,, and to provide protectiveberms and breakwaters". I Monenco/Interlog appear to believe that thechamellbreakwater would require a land use permit rather thana lease. The waterlot request would only provide them with permission for what appearsbe tothe I Phase I approach needs (i.e. out to -12 meters). A future request for considerably more areawould be expected if the development is to occur as shown in their drawings. (i.e. to -20 meters in the approach I channel and turning basin). The request far a le& to secure their occ,upancyof the property is I reasonable and may be necessaryto secure financing. A seabed lease I under the Public Lands Grants would Act establish a strongerright to the dredged areas than would "permission". The request fora 99 year term, combined with the area requested would createa definite monopoly I on port development in favorof Monenco/Interlog and would require Treasury Board approval. On the basis of past port development projects submitted by Transport Canada, there is reason to believe that Treasury Board may be reluctant to approve a lease for such a long- I term, especially considering the area requested. I -30- I Timingand User Commitments The proposalstrongly mggests that a commitment from DIAND conf i mi (or at thevery least agreeingin principle with) the proposal is a necessarypre-condition for the firm to succeesfullymarket the I development.Aside from references to preliminary discussions with a number of potentialusers, the proponents do notappear to have anyone exceptpossibly Peter Kiewit prepared to use the facilities. The I proponenthas Indicated that mo8t potentialusers believe that this typeand scale of facility Is notrequired yet. I Evidence of Monenco/Interlog commitment tothe project is modest. The time, effort andfunding committed to date in preparingtheir proposal andfollowing its progress is nodoubt considerable, but in comparison to theestimated cost of the project, it is very small. It is both reasonable and understandablethat the firm does not wish tospend significantfunds refining or developingtheir plans without some sort of assurance that DIAND is preparedto consider the proposal favourably. The firmappears to be prepared to undertakesuch expendituresonce DSAND givesapproval to do EO. I The timingfar detailed planning and actual start of theproject is not clear. The level of commitment by boththe proponent and the potential users of the facility is not as strong as mightbe expected for a I project of this scopeand magnitude. Type andValue of Federal (or OtherGovernment) Assistance Needed I The proposal makes no reference to a requirementfor federal or other government assistance, either servlces (ice-breaking,navigation aids I etc.) or financial. To the extent that this remains valid,the project is more desirable. As theplanning is refined, DIAND shouldnot be surprised to see the firm proposethat certain portions of the project be takenover, or provided by DIAND or anotherDepartment, or that financial assistance be granted for a portion of theproject costs. Although there is no evidence that theproponents have such a stirategy, similar shifts in I I approachhave occurred in thepast in largeport development projects. Typeof Management Proposed

I The proposalsuggests a "privatedevelopment and under private control",while recognizing that DIAND, andTransport Canada may be considered"governing authorities". There is bo suggestionregarding I Inuvialuitinvolvement or government involvement in the actual operation of theport or airport. I The management structure proposedis relatively inflexible and,does not anticipate "public" participation, other than'by possible minority ahareholding in the firms. Conclusions

The Monenco/Interlog proposal as presented should be rejected on the grounds that it requests 64 square kilometers be leased for 99 years. This is clearly far more property thanis required for either their first phase or their total developmentas described in their proposal. Accepting the proposal and granting the lease would create a major monoploy situation which in future years could generate significant operational problems.

However, the majorityof Monenco/Interlog's needs can be met within DTAND's constraints and objectives if the recommendations in the next section are implemented. The recommendations propose that future development be limited to the King Point area; a special development zone be removed from the withdrawal order, that the necessary committees and plans be establishedor prepared; and DIANU give a strong signal to the proponents andthe industry that it is prepared to consider and support private sector developmentof a port/airport/ quarry at King Point. It is further suggested thatDIANT) clearly indicate that it will support appropriate leasesfor such development if the detailed planning indicates the developmentcan be undertaken.

The rejectionof the proposal need not be absolute- it may be more desirable from a public relations point ofview to negotiate a revised proposal with Monenco/Interlogin which a smaller area and shorter term are requested in returnfor some degree of protectionof land for future growth needs, and to provide strong signals fromDIAND to the industry that the department will considerport development in the King Point area. The process could also include identification of data that must be collected and analyzed before final approval of leasesis given. I IX RECOMMENDATIONS !

General

I The followingrecommendations can be summarized briefly by the followingpoints. DIAND shouldacknowledge that there will likely be a need for a medium to deep draft port west of Tuktoyaktukand that as a 1 result of the numerous previousstudies and the creation of a park west of the Babbage River, the preferred site is King Point. DIAND should thereforeundertake and/or encourage more detailedplanning for the eventualdevelopment of KingPoint. The preferreddevelopment scenario I should be one in which private sector demand drivesprivate sector development;assuming adequate planning has taken place or is underway. DIAND will thenfacilitate such planning and development. To minimize I therisk8 associated with the creation of a monopoly, a "minimal lease" approachshould be used,thus, a largermulti-user facility serving all clients will emerge as a result of scale economiesand management 1 efficiencyrather than as a result of an exclusive lease. The option remainsfor DIAND, other federal bodies or the Yukon to undertake some or all of thetrue common-use facilities such as thedredged channel, I turningbasin, roads, airport, etc., should it beseen to be desirable to do SO. All of the recommendationsassume that at least DIAND and the YTG, and the lnuvialuit are in agreementand support the approach.

I I Port Location

Sufficient past work hasbeen undertaken to conclude that if a decision 1 is made to permit port development on the westernBeaufort shore, it is likely to takeplace in theKing Point area. Inorder to ensure that theconcerns and problems thathave been raised relating to the site are fully examinedand rectified, it is necessaryto provide a strong I signalto those concerned that DIAND is prepared,under certain conditionsif necessary, to consider favorably such port development. The finaldecision to lease specificlands will of coursedepend on 1 more detailedplanning, specific propsals, additional environmental impactdata and suggested mitigative measures to overcomeproblems. The followingrecommendations will ensurethat these factors, a6 they I I relate toport location, are addressed. 1. Formallyestablish as Departmental policythat DIAND will support 1 onlyone new portdevelopment on theBeaufort west of Tuktoyaktuk. 2. Designatethe King Point area as a Development Zone €orfuture I airportdevelopment, port development, quarries, etc. 3. Initiatethe processes and organizationsnecessary to prepare specific,formal land use and development plans, to include the I proposed King Point port in the Northern Land Use Planningprocess, and toprovide for YTG, Inuvialuitand other interest group - input.

1 -3 3-

4. Undertake, specify or permit additional detailed technical and ! environmental data gathering and analyses 'that have been recommended, or that are requested as a result of new planning initiatives.

5, Existing facilities and operations at Herschel Island, Stokes Point or other sites west of Kay Point should be phased out and incorporated into King Point as it developsin order to keep port activities localized in one area and to reduce industrial/ commercial activity in the National and Territorial parks.

Planning and Development

Although the planning processes and responsibilities are fairly well defined in the legislation and in DIAND policy, the following recommendations identify key issues that should be considered. All have been raised by previous writersor groups that have, examined the Beaufort area and/or the past King Point development proposals. Addressing the issues should help minimize potential criticismof the planning process.

1. Establish as Departmental policy thatin the event two portionsof a project would be subjectto different evaluation criteria (particularly on environmental issues), that the entire project be subject to the more stringent of the two criteria.

2. Issue land use permitsor other authorizations to enable Monenco/Interlog, or others,to undertake drilling or other technical data gathering as required.

3. Establish as Departmental policy thatDIAND wil receive a copy of all technical data and analysis and further ensure that all involved are awarethat such data will be availableto anyone requesting it.

4. The economic impact of a King Point porton port operations at Tuktoyaktuk and oh barge traffic along the Mackenzie should be I examined.

5. The need for Canadian Coast Guard icebreakers and other government support services should be examined.

6. The need for and impact of a road link (winter only or yearround) to the Dempster Highway should be examined.

7. DIAND should designate a senior officerto coordinate all federal departmental requirements relating portlairport developmentand operation. Land Disnosition ! At some point in time, theWithdrawal Order will have to be amended to recognizethe Department's acceptance of port/airport/quarryactivities inthe KingPoint area. The earlier this is done,the stronger will be thesignal DIAND sendsto the industry and interest groups. It is recognizedthat additional data will berequired before long term leases are approved,and that this data gathering and analysiscould take two tothree years. The benefits of amending theWithdrawal Order are considered to exceedthe problems or oppositionthat might arise, particularly if appropriatesafeguards, conditions or explanations accompany thenotification of amendment tothe Order. The following recommendationshighlight factors related to landdisposition.

I. Amendment of theWithdrawal Order, reinstating at a minimum, the 8 km x 8 km development area proposed by Monenco/Interlog,plus the Kiewit quarry area plusnecessary road access.

2. Designatethe reinstated area a8 a proposedport/quarry/airport development area withboundaries to be redefined as necessary on completion of a formal Land Use Plan,environmental assessments and othertechnical analysis.

3, Adopt a minimalleasing policy in whichland or waterlots are only leased on an "as required'*basis, for the minimum area neededto undertakethe specific project.

4. Leases shouldbe used only where security, tenure or exclusivity is required by the lessee and/orhis financiers,

5. All other activities (such as roads)should be authorized by land usepermits, licences of occupation or other methodsnot requiring thecreation of an interest in theproperty.

6. Lease terms shouldbe kept as short as possible,preferably coinciding with t.he term of financing,the depreciation schedule selected by the leseee, or some similar term enablingthe recovery of costs and a degree of profit. I

7. Deadlines for start/finlsh of construction, by phase or even by individualproject, should be part of the leases. Performance bonds or penalties for not starting or completingwithin the time frameshould be included.

8. Land use permits, licences or other authorities for roads and dredgedchannels in particular should obligate the user to all futuremaintenance costs over the life of theauthorlzed use of the property. -3 5-

9. Leases should require the lesseeto meet all requirements specified by other agencies regarding protection of navigable waters, safety, ! environmental protection, and operational requirements €or such things as aids to navigation and aerodrome standards,

10. Leases should specify when, how and if the lessor has the right to designate all or part of the leased area as public, multi-user or subject to additional outside control, and under what conditions the lessor may use the facilities.

Site Management

UIAND's role in site management is assumedto be minimal, sincethe facility will be a private investment to Gerve private sector users. Since the thrustof all the recommendations is toward granting the right to build 5 port or facilities (as opposed to the only portor facilities), there is a potential for conflict between the initial developer/operator and future developers. To the extent 'possible, DIAND should encourage resolutionof such conflicts between the parties, but in recognitionof the potential difficulties that non-resolution could create,an arbitration mechanism should be established. An advisory body of interested or affected parties could help ensure that the developer/operatorof the port facilities adequately respond to the concernsof parties other thanUIAND or the users. The following recommendations address these issues.

1. The site and facilities should be initially considered to be private operations, with minimal Departmental Inputor control.

2. Adjacent leases should be granted only aftera review of existing lessee growth/expansion plans.

3. The granting of leases adjacent to existing leases for similar purposes (for example toDome, next to a Monenco/Interlog facility) should be conditional on agreement between the two lessees concerning the sharingof costs or the fees for using common facilities (such as dredged channel, turning basis, aidsto navigation and roads). and navigation I

4. The lessor (i.e. the Minister orhis representative) must have the right to examinelaudit the lessee operationsin the event that unresolved disputes over feesor costs arise.

5. The lease(s) should include arbitration or dispute - resolution mechanisms, particularly where the dispute relatesto the management of the site, or the useby others of certain "common" facilities. 6. An advisory committee may be established w$th representatives of ! I the Territorial government, the Inuvialuit,CYI, or other parties with a legitimate interestin the development and operation of the site.

Funding I The following recommendations are straightforward and self-explanatory, and generally recognize thatDIAND will not likely significantlyor actively participate in the funding of the project.

I 1. The project(s) should be considered as private sector initiatives to the extent possible, and funded privately.

I 2. Departmental expenditures, if any, should be directed towards the common good,for example, in the preparationof land use plans, refinement of general technical dataon currents, sedimentation, 1 geomorphology, wildlife studies or €or the provision of common use facilities.

3. The Department shouldremain neutral on lessee requests for funding I or financial assistance from other federal programs suchas airport I construction and operationor industrial development grants. I

I I I I I I X NEGOTIATION/IMPLEMENTATION STRATEGY 8 ! The following points should be used to develop the frameworkfor the Departmental negotiating strategy, Until the Departmental positionon I many of the issue8 and recommendationsnoted in this study is known, a full negotiation strategy cannotbe prepared. The following points have been identifiedin order to illustrate the key factors that should I (or might) be included ina negotiating strategy. I 1. Confirm YTG/Inuvialuit/CYI agreement with the approach. 2. DIAND/YTG should as far as possible speak wlth one voicethat is acceptable to the Inuvialuit,CY1 and others with significant I interests in theproject. 3. Require demonstration of the need fora port.

4. Industry and proponents to benotified that all long term (greater than 6 yrs), medium or deep draft development willtake place at or near King Point. A development zone will be removed from the I withdrawal Order if the proponents agree theto recommended approach for port development and operation.

5. Land UsePlan(s) will further limit/definc location and/ortype of I development (dredge or fill the lagoon,or build a causeway).

6. A fundamental iasue is that the development should be private. I DIAND contribution, if any, (or Government Contribution such as from CCG) should be on only multi-user portions, e.g. channel, turning basin breakwaters, navaids, ice-breaking, dredging, roads and airport.

7. A fundamental position is that DIAND will ensure the resolution of disputes and may possibly take oversome facilities (common user) I in the future, but under no circumstance6 shouldthis lead to a "guarantee" of profit or even cost recovery. DIAND arbitration should be last resort and while fair, should be sufficiently I I undesirable to encourage private resolution. 8. It is fundamental thatif the operation meete user,DIAND, YTG, I Inuvialuit and other legitimate concerns, it will be left alone. 9. "Minimal lease" strategy to be followed. Current leeseeto have some type of option or assurance an adjacent property, for future I development as identified in the Land Plan.Use 10. Other users to havethe option to lease desirableproperty to meet I theiroperational needs if theycannot or 'do not wish to dealwith Monenco/Interlog. They will be obligedto reach agreement on any common facilities they may need touse such as thechannel, I turningbasin, roads, airport and utilities. 11. Lease terms should be as short as practicable, for example 20-40 years(not 99 years). Once facilities are paid for or amortized, I a new term (presumably at higher rent)could beconsidered. To the extent possible DIAND shouldtry to keep lease terms within its delegatedauthority to avoid having additionalconditions I imposed on thedevelopment or to avoidsignificant delays in approval of leases. I I I I I I I I I

I I I Appendix I Allocation of Common Use Facility Costs I I I I I I I I I

I Allocation of Common Use Facility Costs

I ! The followingdiscussion illustrates one possible method of treating potential common-use facilitiesprovided by theinitial developer, but later to be used by others. It is intendedto demonstrate that arbitration of property-usedisputes can be both fair and undesirable (thusencouraging resolution between the parties). It alsoillustrates a meanswhereby arbitrationcan take place without the problems associatedwith determinig market value or replacementvalue of assets.

As long as the initial developer at KingPoint is theonly one providingand operating infrastructure, the allocation of costs associatedwith common use facilities is not a problem;they can be includedin the normal fees charged for theuse of the infrastructure, orcollected as a generalsurcharge. If a seconddeveloper or a major user wishesto build its own storage facility, or wharf,the question arises of how the costs associated with other facilities or serviceshe usesshould be shared. Under ideal circumstances, the two parties would negotiate a feeand come to agreement,however, since one of the partieshas provided the facility initially, and may well suffer a loss of potentialbusiness due to the second development, it is not unreasonable to suggestthat he may see themarket value of the common facilities as greaterthan the second developer would. DIAND may well be required to arbitratethe situation.

Themajor problem to be faced is thatthe market value of a facility for whichno alternative exists (or wouldbe permitted) is virtually impossibleto determine objectively. It is thereforeproposed that in its negotiations, DIAND explicitlyestablished two facts:first, it will arbitratesuch disputes If necessary, andsecond, the solution will bebased on past costs, not on currentvalue. This will produce a solutionthat is fair,while at the same time likely to be undesirable enough toencourage the developer to negotiate a costthat is acceptable to thesecond party.

DIAND's resolution of suchprobleme should be absolute and bindingon all parties andshould be based on the book value of the asset at the I time of negotiation.This will requirethat for common usefacilities (at a minimum), theactual capital cost (including financing costs), andthe amortization schedule used by thefirm, beprovided to DIAND. Thereshould also be provision for DIAND or its representative to have access to the books of the lessee toconfirm such costs.

The followingexample will illustrate the application of theprinciples outlinedabove. Assume thecosts of dredgingan entrance channel and turningbasin to -12 meters are $12,000,000, fullypaid in year 0. In year four a secondoperator wishes to establish his own wharf in the harbour.In year six, the original operator wishes to servelarger vessels,requiring dredging the channel and turning basin to -20 meters and construction of breakwatersto protect the deeper channel. This costs $25,000,000. In yeareight a thirdoperator establishes hi8 own facilitiesto serve vessels requiring -20 meters depth, The second I operatorcontinues to onlyrequire channels 12 meters deep. The problem is how much shouldthe second operator pay the first for his right to use thedredged areas, and howmuch (and to whom) shouldthe I third operator pay. For theanalysis assume straight line amortization over 25 years and all costs to be at yearend. I The annualmaintenance costs will beshared equally (or proportionally) according to theneed OK use of thechannel. For example two users of a 12 meter channelshare maintenance dredging equally. One user requiring -12 meters andtwo requiring -20 meters would share the costs I as follows,assuming an average original depth of -8 meters: user A pays ll.l%,users B and C 44.4% each, If all threerequired a depth of -20 meters, the cost wouldbe shared equally, but user A onlyrequires I -12 meters (a dredgingneed of 4 meters compared to B and C who have a dredgingneed of 12 meters) which is 1/3 of thatneeded by theothers. He would thereforepay 113 of the 1/3 share,with the balance divided I equally between theother two parties. It may be reasonableto divide such coBts proportionallyaccording to the length of available wharf for example, if there wouldbe disproportionateuse of thechannel by I one partyor the other. The following tables illustrate the capital costs, book value and the pricethat should bepaid by each new entrant.

Table I. Costs and Book Values ($000) - One Operator.

-Year AmortizationCapital Book Value 0 $12,000 $ 480 $12,000 1 - 480 11,520 1 2 - 4 80 11,040 3 - 480 10 ,560 4 - 480 10 ,080 I 5 - 480 9,600 6 4 25,000 480 , 34,120 7 - 1,480 ' 32 ,640 8 I 1 ,480 31 ,160

I I 9 1,480 29,680 10 - 1,480 28,200

I Total $37,000 $8 ,800 $28,200

Inyear four, the second operator wouldpay the first, $5,040,01rO and I acceptresponsibility for halfthe annual maintenance costs. The year six expenditure is notshared, since the second operator only requires -12 meter depthnot -20 meter. His share of annualmaintenance would drop to 16.67% from 50%, sincethe depth he needs is only 1/3 that of I thefirst operator. Withno other operators, the capital would appear ~~ as follows : -3-

Table 11. Costs and Book Values ($000) - Two Operators. I Operator One Operator Two -Year Capital Book Value Capital Book Value 0 $12,000 1 $11,520 2 11,040 3 10,560 4 5,040 $5,040 - 5 4,800 $4, 800 6 25 ,000 29 ,560 4,560 7 28,320 4,320 8 27 ,080 4,081) 9 25,840 3,840 10 24,600 3,600

Total $33,960 $24 600 $5,040 $3 ,600

The introduction of a third operator in year 8 regui.res him to compensateboth the existingoperators since theyboth contributed to thecost of thecurrent channel. His payment forthe original -12 meter dredging wouldbe suchthat the current book value for it is equally(or proportionally) shared by all three users. His payment for theadditional dredging would be such that he andthe original operator equally (or proportionally)share the current book value. Thushe would pay $1,360,000 to each of theother two for theoriginal channel, and a further $11,500,000 to the first operator for theadditional depth. The costs and book value would then be as in Table 111.

Table 111. Costsand Book Valuea' ($000) - ThreeOperators.

Operator One Operator Two OperatorThree -Year Capital Book Value Book Value Capital Book Value 0 $12,000 - - - 1 - $11,520 - - 2 - 11,040 - 3 - 10,560 - - 4 (5,040) 5,040 w - 5 - 4,800 $4,800 - 6 25,000 29,560 4,560 - 7 - 28,320 4,320 - 8 (12,860) 14 ,220 2,720 $14,220 9 - 13,560 2,560 - $13,560 10 I 12,900 2,400 - 12,900

Total $19,100 $12,900 $3,680 $2,400 $14,200 $12,900 -4-

The total book valueremains as in Table I ($12,900,000 + $12,900,000 f $2,400,000 = $28,200,000) andthe total original capitalpaid remains the same ($19,100,000 -t $3,680,000 f $14,220,000 = $37,000,000). In theevent that DIAND is requiredto assume control of theport in year 10, the same paymentwould be made regardless of how many operators exist ($28,200,000); onlythe distribution among thenchanges.

Two thingsshould be noted - first, there has been no attemptto account for thechanging value of money over time due to inflation;and second,the annual or periodicmaintenance costs are notcapitalized. Inthe first item, inflation is ignored since theoperator pays for the capital in one of two ways - by cash or by a loan of some type requiring(usually) fixed repayments which do not rise over time. This is particularlytrue if a long term bond issue is used. If it is seen to be necessary or desirableto account for inflation,this can easily be done, but it will reducethe "unattractiveness" of the imposed solution.In the second case, a dredgedchannel is unique inthat it can have an infinitely long usefullife providing periodic redredging occurs,and at eachrenewal, the "value" of the asset increases since its replacement cost is a function of currentunit dredging costs. Thus some people would argue for the inclusion of theperiodic redredging as a capitalexpense. The analysis usedin these examples treats onlythose expenses which deepen, or widenthe dredged area as capital;redredging is consideredto be entirely a maintenanceissue. Each contributorto the capital cost is expected to assume his fair proportion of thefuture maintenance of the asBet as and when it is required.

In practicalterms, it: makes no differencewhether subsequent operators pay a cash lump sum of theircontribution, or agree to annualpayments the impact shouldbe the same. If the work is financed by a long term loan, the sharingcould be accomplished by sharingthe annual principal and interest paymentson the same basis that the lump sum was calculated.

Thismethodology can be shown to be fair since it dealswith actual expenditures made whileavoiding adjustments for risk,inflation and ' profit. It is extremelylikely that if such development proceeds, that the marketvalue (not only the replacement value) of the assets created will rise over time. This will be recognized by bothparties and shouldprovide for ample room to negotiate a reasonablevalue. An imposed solutionbased on this suggested methodwould be more and more undesirable as thespread between original cost andreplacement cost or marketvalue increases. It also provides a "bottomline" that the existingoperator(s) can calculate themselves in advance). The example used is purposelycomplex in order to illustrate the principles. DIAND should require as a condition of any lease granted ! I toconstruct facilities at King Point, a cost: breakdown of those componentswhich are likely to be consideredmulti-user in the event thatanother developer/operator wishes to considerKing Point. Access to the lessee's books will be necessary to verifythe figures. A11 costsshould be net costs to the leasee.If for example, an unconditional DRIE grant is made tothe project representing 20% of total costs,the cost of the potential common facilitiesshould be I reduced by 20%. If a grant is made to cover 80% ofthe dredging costs (or theairport or some otherpotential common use facility),then only the 20% actually incurred by theoperator should be considered in calculatingthe cost to be paid by futuredevelopers/operators.

In the event that DIAND desires to assume control of some or all of the common use facilities (rather than beingforced to do so to resolve ongoingdisagreements), nothing precludes the Department from negotiatingcompensation based on currentmarket value oq on some other equitable basis.

I !

Appendix I1

Documents Reviewed DocumentsReviewed

! 1 . MarineSupport B ase Stokes Point, Y.T. Gulf Canada Resources July, 1982 Inc.

2. Application for Land Use Permit, Gulf Canada Resources StokesPoint, Yukon, Supporting Inc. Documentation February, 1983

3. Proposal for Beaufort Quarry Peter Kiewit Sons Co. KiewitIACZ Ltd.and ACZ Marine June, 1983 Contractors

4. King Port Development Monenco Ltd.and June, 1983 Interlog (U.K. ) Ltd.

5. PreliminaryReport, Rock Exploration Hoggan Engineering and Kiewit Quarry, King Point, Yukon . Testing (1980) Ltd. October, 1983

6. Kiewit/ACZ BeaufortQuarry Peter Kiewit Sons ,Co. Development Ltd.and ACZ Marine December, 1983 Contractors

7. Tuktoyaktuk Community Plan Community Planningand June, 1984 Development Division, G.N.W.T.

8. KingPoint and the Northeast David Livingstone Yukon - Development EnvironmentalImpacts and a Management Framework - Draft, 2 Volumes October, 1984 I 9. Port Policy for the Canadian Ken Beauchamp far Arctic Coast Canadian Arctic March, 1985 ResourcesCommittee

10. King Port - Land Use Monenco Ltd. and Applicationand Development Interlog Consultants Proposal, Volume 2 June, 1985

11. King Port - Application to Monenco Ltd. and Lease Crown Land for Interlog Consultants CommericalPurposes, Volume 1, September, 1985 12. Beaufort Sea Oil Ports: Nigel Tucker, for An Assessment of Development and Transport Canada Marine I Management Alternatives Policy and Coordination September, 1985

13. Investigation of Subsurface M.J. O'Connor and Conditions at King Point, Yukon Associates Ltd. Territorial, 2 Volumes March, 1986

14. DIAND Files and Internal Correspondence

15. Relevant Statutes and I Regulations