Economic Setbacks Buffet Newfoundland
CANADA - Development of island's Hibernia oil fields delayed
TORONTO — NEWFOUNDLAND, an island jutting out into the frigid North Atlantic that is already poor by Canadian standards, may become even poorer. The reasons may mystify the ordinary residents, and are well beyond their control.
London's Canary Wharf office development is having trouble; presto, 1,100 of the best-paying jobs in the Canadian province - on the offshore oil rigs and shipping yards - are in danger.
Further, codfish stocks, mainstay of the Newfoundland fishery, seem to have shrunk drastically, perplexing the experts and angering the fishermen who blame foreign overfishing and hungry seals. The answer may not be that simple.
First the oil problem.
Gulf Canada Resources Ltd. announced last month that it is pulling out as a 25 percent partner in the Hibernia drilling project off the coast of Newfoundland. The company said it wanted to deploy its resources elsewhere. Gulf Canada is 72 percent owned by Olympia and York Developments Ltd. of Toronto, a firm owned by the Reichmann family of Toronto.
Olympia and York also controls the Canary Wharf, a $3 billion (Canadian; US$2.5 billion) project in the docklands east of the City, London's financial district. A recession in London means trouble for Canary Wharf and for Newfoundland.
The London commercial property market has "a high vacancy rate, relatively low rents in comparison to past years, and slim prospects for meaningful recovery in the near term," according to the Dominion Bond Rating Service, which downgraded some of Olympia and York's debt.
Tenants have moved in and the property has long-term potential, but the Reichmanns are raising cash. One of their holding companies sold Interprovincial Pipe Line Inc. for $625 million this past week. And at the same time the family is avoiding other heavy expenditures such as the high-risk Hibernia development.
The other Hibernia partners are looking for a replacement for Gulf Canada. The federal government says it will put no more public money into the $5.2 billion offshore drilling program. Bill Hopper, chairman of Petro-Canada (one of the remaining private firms), shocked Newfoundland last week when he said the project would be mothballed if a replacement wasn't found for Gulf within 60 days.
"The chances of finding a replacement for Gulf are slim," says Wilf Gobert, an analyst with Peters and Company Ltd. in Calgary. He said Petro-Canada, once government-owned but now owned by public shareholders, can no longer see itself as an instrument of government policy. "Petro-Canada has to be seen as doing what's in the shareholders interests, not what's in the social and public policy interest."
Now the fish. The trouble is that northern cod, found in and beyond the 200-mile fishing limit around Newfoundland, have been disappearing. The actual numbers, or cod census, done by federal fishery scientists, show that cod stocks dropped dramatically last year. In 1990 there were 1.1 million tons of cod in the survey area; in 1991 it was 800,000 tons.
"More disturbing than those numbers is that the spawning biomass, those cod old enough to breed just aren't there," says Roger Stirling, president of the Seafood Producers Association in neighboring Nova Scotia.
That has brought limits from the federal government on how many cod can be caught. Again, bad news for Newfoundland because cod is the most important fish in Newfoundland and the fishery - catching the fish and processing it - is the island's biggest employer. Already the effects of the two-week-old ruling have been felt.
"Lower costs and fewer people," was how Victor Young said his firm, Fishery Products International Ltd., would handle the cod crisis. The firm, with more than 8,000 employees, 42 deep-sea trawlers, and 19 processing plants, says it will have to lay off workers and close plants this summer because of the cod shortage. The giant National Sea Products Ltd. of Halifax, Nova Scotia, laid off 670 workers in Newfoundland this month. "In effect, NSP's operations in Newfoundland are shut down until further notice ," said company president Henry Demone.
Angry fishermen blame overfishing by trawlers from Spain and Portugal and by the ending of the seal hunt, which was shut down after international protests. The seal population off Newfoundland has gone from 2 million to 3.5 million in the past decade, and fishermen say they eat cod and capelin, the cod's favorite fish.
Newfoundland has an official unemployment rate of 18.9 percent - Canada's highest.