Oilsands firms may sue if water curtailed: activist; Province disputes Barlow's NAFTA interpretation

Darcy Henton, April 16, 2008, The Edmonton Journal -- Water crusader Maude Barlow warns that the governments of Alberta and Canada could be forced to shell out hundreds of millions of dollars in compensation to foreign-owned oilsands companies under NAFTA if a drought forced the province to ration water.

Barlow, the author of two books on water conservation, says a recent paper produced by University of Toronto law professors Joseph Cumming and Robert Froehlich paints just such a scenario.

"These corporations would not only have the right to sue for existing water use, but for all the investment they put in for the future," she said Monday in a telephone interview from Seattle.

Canada could argue the cancellation of water licences was needed for environmental reasons, but the companies would still have a strong argument that they're entitled to compensation, she said.

But Alberta Environment officials aren't worried because they say water has been excluded from NAFTA, except for bottled water.

"It is specifically excluded as a natural resource in its purest sense," said Alberta Environment spokeswoman Kim Capstick.
The provincial legislation governing the issuance of water licences also empowers the province to restrict or suspend them if it's deemed necessary, she said.

"When we issue a water licence we say to whomever we issue it to that they can use this much water, but the Crown and Albertans remain the owners," Capstick said.

But Barlow, national chairwoman of the Council of Canadians, says more than half the companies operating in the oilsands are American corporations that have compensation rights under the North America Free Trade Agreement that are not open to Canadian companies.

"We have a scenario where Alberta is destroying its water heritage to produce oil that profits American companies and goes to the U.S.," she said.

Barlow said Albertans need to stop all new oilsands development while there's a full assessment of the implication of the massive expansion that's being planned.

The Canadian government should also press the U.S. and Mexico to re-open NAFTA to remove the clause that the Toronto academics consider problematic, she said.

Barlow noted both the Democratic candidates for U.S. presidency have expressed an interest in revisiting the trade agreement.

"This is an ideal moment for us to put forward an alternative vision of what we would want in the NAFTA agreement," Barlow said.

The U of T authors set out the argument with a hypothetical case in which a lengthy drought places the aquatic environment in a particular region in critical danger.

They say the cancellation or suspension of water licences in the oilsands in such a case would be "tantamount to an expropriation."

"In the case of an oilsands operation that is shut down as a result of a loss of its water licence, one can conceive that compensation from a successful ... claim could be exceptionally high."

They say Canada and Alberta would have few options, but one might be settling out of court before the issue got to the NAFTA tribunal.

"A settlement would help avoid the embarrassment that a government would be faced with if a transnational panel ruled against an internal legislative measure," the authors say.

They note that Canada set that precedent paying Californian company Sunbelt Water an out-of-court settlement when it was sued for $468 million after the British Columbia government imposed a moratorium on bulk water exports in 1991. The company had just signed a deal with a B.C. company called Snowcap Waters to export water by supertanker from B.C. to California.

The only good news for Canada in the academic paper was a note by the authors that to date NAFTA tribunals have awarded much smaller monetary awards than have been claimed. One company that sought $381 million in compensation under NAFTA received only $400,000, while another seeking $90 million US received only $15.6 million US.

Bill Donahue, a water expert who provides expert testimony at oilsands approval hearings, said he would be surprised if Alberta Environment wasn't taking the warning expressed in the academic opinion seriously, because federal officials seem to be.

"For someone at Alberta Environment to say it's not an issue is an exceptionally premature conclusion," he said. "If that response is true, if it actually indicates Alberta's opinion, Alberta has a lot of catching up to do and the possible liability of Alberta and Alberta taxpayers is enormous."

The consultant says that recent NAFTA tribunal rulings have deemed water to be property that is subject to NAFTA conditions, and one ruling required compensation to be paid.

Donahue said that if Alberta were to limit an oilsands company's water licence and force it to cut back production, the costs could be "astronomical."

"If Alberta is wrong with their opinion that NAFTA doesn't apply to them, the risk associated with that opinion is very high," he said.

"It would be in their best interests and our best interests to get some legal certainty on their opinion."