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1990 Report of the Auditor General of Canada

Main Points

19.1 The Department of Indian Affairs and Northern Development (DIAND) is responsible for managing all Crown lands and natural resources in the Yukon and Northwest Territories. These lands comprise 40 percent of Canada's land mass and are home to about 79,800 Canadians. Although the DIAND Act clearly assigns the responsibility for managing the North to the Department, DIAND's transfer over the years of provincial-type programs to the territorial governments has made it difficult to hold the Department fully accountable for how it discharges this responsibility. To carry out those programs, DIAND transferred $825 million to the territorial governments in 1988/89 (paragraphs 19.6 to 19.14).

19.2 DIAND has not established a framework for evaluating the effectiveness of the land claims settlements. If the settlements listed in paragraph 19.29 are all ratified, the financial compensation and implementation costs will exceed $1.9 billion (19.32 and 19.30).

19.3 DIAND does not have any approved land use plans, despite having incurred expenditures of over $20 million for this purpose since 1981. The Department continues to spend over $5 million annually on this planning program (19.39 to 19.42).

19.4 Although DIAND does have some information on water quantity, it has comparatively little on water quality. DIAND does not carry out water licence inspection and enforcement vigorously. Several significant water contaminations persist (19.55 to 19.88).

19.5 Revenues from mineral activities are well below their potential. Rates for mining fees and rentals have not changed for over 60 years, and the royalty for gold placer mining is based on a gold value of $15 per ounce, which is far below the current worth of gold (19.105 to 19.107).

Background

19.6 The Yukon and the Northwest Territories (NWT) encompass an area of some 3.9 million square kilometres, covering 40 percent of Canada. Spanning more than 4,200 kilometres from west to east and 3,500 kilometres from north to south, this immense region is of strategic importance to all Canadians.

19.7 The Yukon and NWT are home to about 79,800 Canadians. Two thirds of Yukon's 25,800 residents live in and around the territorial capital of Whitehorse, while less than one quarter of NWT's population of 54,000 live in Yellowknife. The remainder of the northerners, mostly of native origin, live in some 100 scattered smaller communities. The northern population grew from 25,000 in 1951 to 75,500 in 1986 -- an average annual growth rate of 4.6 percent, which is about twice the national average. In the Yukon approximately one fifth of the population is of aboriginal origin. In the NWT close to 60 percent are Indian, Inuit or Metis. Across the Territories at least six main native languages with many dialects are spoken. For many northerners, neither English nor French is the first language.

19.8 From a southern perspective, life in the North is often seen as harsh, remote, and lacking basic amenities. But for most northerners, the native population in particular, the view is quite different. For them it is a nurturing and secure place, a home with deep social, cultural, and spiritual roots in a rich, productive land. These perceptions are realities to be understood. But whatever the perspective, the North is expensive to govern.

19.9 The federal, territorial, and local governments are the largest employers in the North. They provide 30 to 40 percent of total employment. In the private sector, mining is the most important activity, followed by tourism.

19.10 The characteristic low temperatures, permafrost, soil conditions, and alternating long periods of sunlight and darkness of the northern latitudes, create an ecosystem that moves through seasonal cycles of prolonged deep freeze and shorter periods of explosive biological productivity. It alternates from austere, cold beauty to a lushness supporting an abundant population of migratory birds and mammals. For the most part, an agricultural industry is not economical or viable. However, underlying all conventional economic statistics is the vital subsistence economy of hunting, fishing, and trapping. These traditional land-based subsistence activities provide an economic, social, and cultural base for a rapidly growing rural population. The unemployment rate among native northerners, at 50 percent or more in some communities, is one of the highest in Canada. This situation is aggravated by the fact that over half of the native population is under 20.

19.11 The Indian Affairs and Northern Development Act of 1970 established for the Department a broad statutory base to serve as a quasi-provincial agent in the two Territories. The Minister of Indian Affairs and Northern Development is responsible to Parliament for the management and direction of provincial-type services and for managing all Crown lands situated in the Yukon and NWT. The Act also assigned to the Department the responsibility for co-ordinating the activities in the North of other federal departments, boards, and agencies.

19.12 In 1988/89, DIAND made unconditional grants of $825 million (see Exhibit 19.1) to assist the two territorial governments in the provision of a full range of public services for their populations. These grants reflect the high cost of providing government services in northern Canada and the relatively small yield of tax revenues that are generated in these vast, sparsely populated parts of the country. Both territories still depend to a substantial degree on federal financial support.

Exhibit not available

19.13 Within the same period, significant changes have taken place in the nature and scope of funding arrangements between the federal and the territorial governments. In 1985, formula financing was implemented to ensure that this revenue dependency did not inhibit the capacity of the northern governments to set their own priorities. This approach permits the elected governments in the North to budget and spend as they see fit within a ceiling arrived at by a formula, without having to justify their expenditure allocations to the federal government. An annual increase is now also provided through an agreed formula rather than through annual negotiations. The formula involves the indexing of territorial government base-year expenditures by an escalator obtained from the growth rate of provincial and municipal expenditures. The amount reached is then offset by deducting revenues generated within the Territories.

19.14 Over the years the Department has progressively transferred provincial-type responsibilities to the territorial governments in a process that has some precedent in the way in which Alberta and Saskatchewan were created from the NWT earlier in this century. In many ways, the NWT and Yukon can be seen as the last major building blocks in the creation of Canada. Today, the territorial governments have responsibility in the areas of education, local government, property and civil rights, direct taxation, wildlife resources management, and social and economic affairs. Nevertheless, they do not have a constitutional base for these powers. In addition, transferring these programs to the territorial governments has made it very difficult to hold DIAND fully accountable for managing the North, as called for by the DIAND Act.

19.15 The powers of the territorial governments are set out in two federal statutes: the Yukon Act 1953 and the Northwest Territories Act 1952. These are subject to federal legislation. Current arrangements require a high degree of federal/territorial, as well as interdepartmental, co-operation. Evolution towards provincial status for the Territories will not be complete without the transfer of natural resources. Significant first steps are being taken in this regard through the development of the Northern Energy Accord. This has widespread implications for Canada, especially when viewed in light of recent land claims settlements.

19.16 With resource ownership still under federal jurisdiction, resource management and administration is for the most part a responsibility of DIAND, although that is quickly changing through devolution of responsibilities to the territorial governments. DIAND is expected to exercise the lead in areas such as environmental protection, land, forest (Yukon only), water and mineral resources, and oil and gas management. The Department is also accountable for the provision of services regarding regulation of land use, licensing and monitoring of water use, inland water surveys, mineral rights registration, exploration and geological assistance, and environmental management.

19.17 With this mandate, DIAND plays a vital role in the development and protection of the North. It administers key resources legislation, maintains conservation areas, defines options for development, develops and implements land use planning, leads environmental assessment activities, monitors pollution, and co-ordinates research in anticipation of resource developments.

Audit Scope

19.19 DIAND has broad responsibilities for land management, environmental protection, and regulation of hydrocarbon development activities. In 1981, the Canada Oil and Gas Land Administration (COGLA) was set up to provide the federal government's principal regulatory point of contact with the northern oil and gas industry and is jointly administered by DIAND and the Department of Energy, Mines and Resources. The Energy Program of COGLA was audited and reported in our 1986 annual report. This area has been excluded from this audit.

Comprehensive Land Claims

Background

19.21 There is an important link between land claims settlements, devolution of federal programs, and northern political development. Claim settlements have protected status in the constitution. The two territorial governments will have to accommodate those claim provisions that are guaranteeing the participation of claimant groups in the process of government. Claims are much more than cash and land transactions. The challenge facing governments in the North and in Ottawa is to develop institutions and structures of public administration that will accommodate the rights and interests of aboriginal people. At the same time, the elected governments in Whitehorse and Yellowknife must be accountable to all northern residents.

19.22 In a statement to the House of Commons on 8 August 1973 regarding the claims of Indians and Inuit, the Government of Canada recognized two broad classes of native claims -- comprehensive and specific. Comprehensive claims are based on traditional native use and occupancy of land. Specific claims relate to the fulfilment of treaties and to the administration of land and other Indian assets under the Indian Act. This audit focussed on comprehensive claims. Virtually all of the North's vast area is subject to land claims that have been submitted to the federal government by the Inuit, Inuvialuit, Indians, and Metis. Since the comprehensive claims process began in 1973, three have been settled: the James Bay and Northern Quebec Agreement in 1975, the Northeastern Quebec Agreement in 1978, the Inuvialuit Final Agreement in 1984. The Dene/Metis of the Northwest Territories initialled a Final Agreement in 1990 with the territorial and federal governments subject to selection of settlement land and ratification by all parties. The council for Yukon Indians initialled in 1990 an Umbrella Final Agreement with the federal and the territorial governments. This will provide a basis for land selection and negotiation of final agreements with each of the Yukon Indian bands. The largest northern land claims agreement, the Tungavik Federation of Nunavut reached an agreement-in-principle in 1990 (see Exhibit 19.2).

Exhibit not available

19.23 In 1986, we reported on the process for implementing the James Bay and Northern Quebec Agreement. We commented on the absence of implementation plans in the final claims agreements. We felt such an omission would lead to the failure to carry out parts of the agreement, as departmental obligations were not fully spelled out. We also commented on the failure of the Department to comply with legislation regarding the tabling of annual reports on implementation to Parliament. In response to our report, the DIAND Evaluation Directorate conducted a review of the government's implementation of the Inuvialuit Final Agreement (IFA) in 1987. Based on the findings of this review, which were similar to those of our 1986 report, the Evaluation Directorate prepared suggested guidelines containing the procedures for negotiating implementation plans. In December 1989, the Department published these guidelines, which set out the requirements to establish detailed plans for final agreement and ratification by all parties.

Audit Scope

Observations and Recommendations

No implementation plan exists

Roles and responsibilities were not clearly stated

Annual reports do not contain cumulative costs and future commitments

19.28 Annual reports on implementation of land claims settlements should include the cumulative costs of implementation to date and a schedule of financial compensation payments.

Department's response: The Department agrees with the recommendation.

Compensation is not fully reported to Parliament

19.31 Compensation resulting from land claims settlements should be fully reported to Parliament.

Department's response: DIAND will provide information as required by the Office of the Comptroller General for reporting to Parliament.

Economic measures were not evaluated

19.33 A framework for evaluating achievements of the socio-economic measures included in land claims settlements should be established. The results from the evaluation should be considered in future land claims negotiations.

Department's response: Given that the socio-economic benefits of a claims settlement may take 10 to 15 years to be realized, there will be limited input into current negotiations.

Financial compensation was made on schedule

Land Management

Background

19.36 A major land management mechanism currently under development for the North is DIAND's Northern Land Use Planning Program. Its purpose is to identify the preferred and most effective uses of northern lands and resources through the development of regional land use plans. Land Use Planning is under the joint responsibility of the federal government, represented by DIAND, and the territorial governments. The program provides a consultative process with aboriginal groups and communities, which are planning partners in this process to evaluate alternative land uses and resolve conflicts of different interest groups. Land use plans are prepared by the planning commissions through a public process.

19.37 In 1981, the Department announced a federal land use planning policy, which committed it to establishing a system to improve the management of northern land resources. Formal land use planning agreements were finalized between the Department and the NWT government in 1984 and the Yukon government in 1987.

Audit Scope

Observations and Recommendations

No land use plans have been approved, even after expenditures of $20 million over nine years

19.40 The document that is closest to an approved plan is the proposal for Lancaster Sound, in the NWT. This proposal has been under development for over four years, with a history reaching back to 1981. Since the current land use planning agreement requires final approval of the Minister and of Cabinet, additional time will be needed before implementation can commence.

19.41 In the Yukon, the most advanced planning work relates to the Greater Kluane Region. The target date for completion of a first draft plan is scheduled for late 1990.

19.42 There are both actual and potential adverse consequences of not having land use plans. The Department acknowledges that piecemeal land use control, as practised through the issuance of permits and licences, does not address the larger questions. These relate to such areas as minimization of risks to the environment, avoidance of conflict between water users, and development opportunities associated with larger regions and their complex characteristics. Other adverse impacts include possible threats to aboriginal cultures, disincentives to investors, environmental damage, and perhaps economic stagnation. While land use plans would not necessarily provide all the answers, a sound plan would provide a better balance of economic development and environmental protection and a better consideration of social/cultural issues.

19.43 DIAND should take immediate steps with its planning partners to finalize its land use plans, so that they can be approved and implemented to enable effective management of northern lands.

Department's response: The Department will endeavour to focus the plan development process toward finalizing land use plans.

No guidelines for determination of land use planning priorities have been developed

19.45 DIAND should establish criteria and guidelines for determining land use planning priorities that are consistent with federal government policies for the North.

Department's response: The Department will review the feasibility of producing land use planning priority guidelines with a view to determining applicability to the northern setting.

Water Resource Management

Background

19.47 DIAND is responsible for the management of water in the Yukon and the NWT. Its mandate derives primarily from the DIAND Act, which deals with the Department's general role in the management of Canada's northern resources, and from the Northern Inland Waters Act (NIWA), which provides the Minister with specific authority and responsibility for inland water.

19.48 DIAND shares some of its responsibilities for water management with other federal government departments. These include the Department of Fisheries and Oceans (DFO), respecting water standards for fish habitats, and the Department of the Environment (DOE), respecting its participation in water surveys. In addition, the governments of the Yukon and Northwest Territories have important responsibilities in relation to water uses.

19.49 Since some major river systems in Canada originate in provinces south of the Territories and empty in the North, water flows or diversions and discharges of pollutants originating outside DIAND's legislative jurisdiction affect waters within its area of responsibility. In this regard, the development and application of appropriate transboundary water agreements and international agreements on the long-range transport of airborne pollutants play an important role in water management.

19.50 Given the multiplicity of economic, environmental, social, and cultural roles that water plays in the North, and its vulnerability to competing demands, successful water management is a formidable challenge, particularly for DIAND, which bears the main responsibility under current legislation.

Audit Scope

Observations and Recommendations

Water resource management objectives have not been documented

19.53 We found that the Department did not have documented objectives and policy in terms of conservation and development priorities for water management.

19.54 DIAND should state clearly its objectives for inland water resource management. It should specify what it is accountable for and how it intends to discharge its responsibilities. It should also establish criteria for determining acceptable water usage and for monitoring needs.

Department's response: The Department agrees with the recommendation. Water management objectives will be put forward in changes proposed to the Northern Inland Waters Act.

DIAND needs more data to manage water resources

19.56 DIAND informed us that in April 1988, 74 hydrometric stations in the Yukon and about 140 in the NWT were actively being used to collect data on water quantity. Over the years, DOE and DIAND had conducted several studies to determine their station needs. Both departments expressed concern that these 214 stations were not able to provide all the essential data needed for water management.

19.57 For DIAND to effectively manage water resources, it also needs to acquire, maintain, and apply an appropriate body of knowledge concerning water quality for all significant waters under its jurisdiction. A joint DIAND-DOE report states that current informal arrangements to monitor water quality are inadequate.

19.58 According to a scientific evaluation meeting on contaminants in the North held in early 1989, a wide variety of contaminants were present in the snow, ice, air, and water. Samples contained PCBs and DDT compounds as well as cadmium, mercury, and lead. The findings and conclusions of this meeting represented current knowledge of northern contamination at the time of our review. We were informed that PCBs found in the native diets of fish in one residential area in NWT had exceeded the tolerable level. One effective means of monitoring and responding to this kind of contamination is by gathering and assessing water quality information and applying it in water management.

19.59 DIAND should establish an appropriate knowledge base concerning the quality and quantity of northern waters and should apply this knowledge in its management of water resources of the North.

Department's response: The Department agrees with the recommendation.

Knowledge regarding airborne pollution is insufficient

19.61 This is a complex problem. The sources of air pollution that affect our North may not always originate in Canada or even North America. Some of the contaminants, such as mercury and hydrocarbons, have natural sources, and some may be due to industrial activities. In addition, not only DIAND but other federal departments have responsibilities in this area. For example, DOE's Atmospheric Environment Service responsibilities include studying atmospheric changes, which may be partly caused by pollution. However, DIAND has legislated responsibility for co-ordinating all government activities in the North. In this regard it co-ordinates an interdepartmental committee on contaminants in the northern ecosystem.

19.62 At the time of our audit, DIAND had begun to address some of the airborne contaminant concerns that affect water resources. For example, it plans to participate in a draft international agreement for joint co-operation in the Arctic. The related proposals cover many areas of environmental risk: monitoring emissions and biological effects of pollution from oil and gas operations in the North; conducting research and method development for the conservation and protection of northern inland waters; conducting studies on pollution pathways; developing methods to monitor and regulate water quality; and studying long-range transportation of contaminants by air and water currents.

19.63 DIAND has also prepared a discussion guide for the development of an arctic environmental strategy. However, during our audit, DIAND did not have a comprehensive plan to deal with known or suspected water contamination caused by air pollution.

19.64 DIAND should develop and co-ordinate implementation of an appropriate plan to ensure that airborne pollutants and their impacts on water and water users are identified. Furthermore, DIAND should develop and maintain an adequate information base in support of the plan.

Department's response: The Department's five-year research strategy to examine contaminants in the arctic ecosystem will include airborne pollutants.

DIAND needs to know if Water Boards are meeting their statutory objectives

19.66 Under NIWA, a water licence is generally needed when the intended consumption will exceed 50,000 gallons per day or when a discharge of waste will be made into the water. Water Board members are appointed by the Minister of DIAND to assess water licence applications and to make recommendations to the Minister on whether or not the licences should be granted. Board members are not necessarily from the federal government. DIAND officials may provide technical advice and offer opinions to the Boards on selected applications. The objective of the Boards is to provide for the conservation, development, and utilization of the water resources of the Yukon and the NWT in a manner that will provide the optimum benefit for all Canadians and for northern residents in particular. NIWA gives DIAND the authority to perform inspections of any area, place, or premises (except private dwellings) for purposes of enforcing the Act.

19.67 The objectives of the Boards contain competing elements. Accordingly, we expected to find written guidelines on how licensing decisions should balance matters like conservation and development. Guidelines could include such factors as: population density, proximity to wildlife, past history and current use of the area, risk of damage and recoverability, economic benefits, and the compatibility of the proposed water use to the selected criteria. DIAND and the Water Boards do not have such guidelines. Without them it is difficult for the Department to know whether or not Board recommendations are reasonable.

19.68 The Water Boards and DIAND should establish written guidelines to help all the parties concerned arrive at an optimum balance between the conflicting considerations of conservation, development, and utilization of water resources when making decisions to issue water licences.

Department's response: The Department agrees with the recommendation.

Enforcement responsibilities are not adequately fulfilled

19.70 We conducted a general overview of water licence inspection and enforcement procedures in the Yukon and in the NWT to confirm that DIAND had a monitoring function in place. This included an examination of 36 randomly selected water licence cases. We did not perform a detailed audit of all possible compliance matters.

19.71 It should be noted that because of the pervasive effect of water-related contamination, a single toxic discharge can have devastating effects through migration of contaminants into other areas. Consequently, we expected to find a tight application of inspection procedures and forceful remedial action where licence violations were found.

19.72 DIAND's inspection manual for the NWT suggests that inspections of licensees should be performed four to five times annually, depending on seasonal and operational circumstances at the site. In our examination of 10 randomly selected from the 28 industrial licences in the NWT inventory, we found that inspections occurred at an average rate of about 25 percent of the suggested frequency. Lack of adequate resources was the main reason cited for the reduced level of inspection.

19.73 In the Yukon, where placer mining is a major water user, the Yukon Fisheries Protection Authorization requires an inspection of a licensee at least once per mining season and more often if compliance problems are noted. We reviewed five percent of placer mining water licences selected at random and found that the frequency of inspections in the cases reviewed was generally consistent with the requirements.

19.74 Our review in the Yukon and NWT also revealed that when there is non-compliance with water licences or NIWA, DIAND has difficulty in enforcing the applicable conditions. The cases described below illustrate the nature of the problem.

Case 1

19.75 In one Yukon case, a mining company abandoned its mine site in 1978. According to DIAND, the company failed to restore the site as required by its water licence. It also never submitted a rehabilitation and stabilization plan acceptable to DIAND for mine abandonment, which it was required to submit by 1981.

19.76 DIAND periodically monitors the mining area so that it can assess general site conditions. Inspection reports in 1986, 1987, and 1988 revealed erosion, waste deposits, and other matters of concern. A DIAND inspection in 1989 showed that several hazards remain, including open wells, open sewage treatment tanks, and vacated buildings. In addition, there are partially blocked culverts, which are affecting water levels of a lake.

19.77 In June 1990, DIAND confirmed that there had been no action to stabilize waste rock or tailings piles that encroach on streams and create blockages. As well, natural and other discharges containing high levels of asbestos fibre continue to occur. Debris and pits create further hazards.

19.78 In connection with the abandonment of the mine, and at the request of DIAND, the licensee posted five warning signs, which state that "... persons entering this area do so at their own risk and should exercise extreme caution."

19.79 We further noted that the licensee had posted a $400,000 surety bond in 1977 to be used in the event of its default under the licence. DIAND demanded payment of the bond in 1986 for violation of the water licence. The indemnity company refused to pay on the grounds that DIAND had not given it proper notice and details of default. In June 1990, DIAND estimated that the costs for waste removal and rock stabilization were $20 million and observed that it would not be practicable to rehabilitate the site.

19.80 Upon conclusion of our audit, DIAND confirmed that the abandonment issue was still in dispute. We were advised by the company that it does not entirely agree with DIAND's position.

Case 2

19.81 Enforcement inadequacies are not limited to industrial water licences. DIAND files indicated that a major municipality in the Yukon was in non-compliance with the terms of its water licence. The municipality had caused excessive toxicity of certain lagoons discharging into the Yukon River on seven occasions during the year ended 31 March 1990. It also failed to provide any of the required water quality monitoring reports. DIAND informed us in June 1990 that it was considering taking legal action. We further noted that prior to April 1986, the date its licence took effect, the municipality's water usage was not regulated.

Case 3

19.82 DIAND is aware that one NWT licensee was in non-compliance with its licence by discharging waste into the water in excess of permissable effluent concentrations for about 100 days (including arsenic for 50 days) during the period of May to August 1989.

19.83 According to DIAND, the company acknowledged that the non-compliance resulted from operational difficulties. DIAND further noted that it was premature to assess the company's reported attempts to remedy the problems.

19.84 In September 1989, the NWT Water Board passed a resolution calling for consistent and effective enforcement of all licence conditions and specifically identified this company, among others, as one that DIAND should closely scrutinize with a view to possible prosecution.

19.85 In an October 1989 letter to the company, DIAND stated that it considered the company's non-compliance to be significant. In February 1990, the matter was discussed at DIAND's Enforcement Review Committee, who referred the case to the Department of Justice for legal advice. DIAND informed us in June 1990 that Justice had recommended laying two charges and that the case was being referred back to the Enforcement Review Committee.

19.86 In spite of the seriousness of the licence violations, the resolution of the Board, and the operating problems of the licensee, the water licence was renewed in May 1990. We were advised by the company that among other things, it does not agree with DIAND in terms of the interpretation, severity and frequency of the apparent non-compliance.

19.87 The above observations do not mean that all licensed water uses are flawed or risky. However, we are concerned that DIAND's credibility and the effectiveness of water licensing may have been eroded by non-enforcement of licence terms and conditions.

19.88 DIAND should review the adequacy of water licence inspections and either ensure that existing guidelines are followed or make appropriate amendments to its inspection manual. Also, DIAND should enforce licence terms and conditions more vigorously.

Department's response: The Department agrees with the recommendation.

DIAND needs to more thoroughly screen projects for potential damage to the environment

19.90 Screenings for environmental impact on water are performed by DIAND and Water Board officials upon reviewing the water licence applications. DIAND officials screen applications and are responsible for forwarding to the RERC all applications that they feel require further assessment for potential environmental damage. The RERC is responsible for recommending the circumstances under which the complete EARP process will be followed, including public hearings.

19.91 Our review of screening procedures disclosed that:

(a) Water resource officers have no written criteria for deciding which applications should be sent to RERC, and no reasons are documented for those applications that are not sent to RERC.

(b) DIAND does not have written criteria for deciding which projects should proceed to the EARP panel and, in the Yukon, RERC does not have documented terms of reference, objectives, or procedures.

(c) Typically, less than five percent of the applications reach RERC.

(d) In the last ten years, there have been no EARP panels established for Yukon projects having significant water impacts.

19.92 The absence of approved written criteria reduces the likelihood that NIWA's objectives concerning water conservation and development are being consistently and properly interpreted and applied to each water application. Consequently, DIAND cannot know if it is forwarding all the "risk" water applications that require a higher level of review.

19.93 DIAND, in consultation with DOE, should develop written criteria for use by screeners of water licence applications and for the RERC. These criteria should be consistent with NIWA, properly integrated with EARP requirements, and used to form the basis for documented decisions on the extent of environmental considerations given to any project coming under DIAND's mandate.

Department's response: The Department agrees with the recommendation.

DIAND has not adequately responded to recommendations arising from the 1981 Mackenzie River Basin Study

19.95 The audit is particularly concerned with the lack of implementation of the first recommendation, which deals with water flows and quality, because it is fundamental to the protection of the NWT as a downstream interest. It relates to the need for transboundary water agreements involving seven jurisdictions. The committee established to implement the study acknowledges that progress has been slow. Its 1988/89 annual report does not indicate any major disagreements with the recommendations. We believe that DIAND, with the co-operation of the other participants, should hasten the completion of these crucial agreements, particularly in view of the heavy industrial use of major water systems that originate south of the 60th parallel and flow to the North.

19.96 DIAND, in co-operation with DOE, should take the necessary action to expedite the implementation of all the applicable recommendations of the 1981 Mackenzie River Basin Study.

Department's response: The Department has started and will continue to work with the Department of Environment, the provinces of British Columbia, Alberta and Saskatchewan, and with the governments of the Yukon and the NWT to implement the study recommendations.

Minerals Management

Background

Exhibit not available

19.98 In respect to mineral development, DIAND has a dual role -- as a federal and as a quasi-provincial government. Accordingly, DIAND is responsible for developing legislation and policy, regulating the mining industry, collecting royalties, and issuing leases and licences.

19.99 Mining is highly sensitive to world markets and government actions. Like oil and gas, it is subject to a high level of risk. Northern exploration is costly and is carried out with no assurance of finding viable mineral deposits. Northern infrastructure costs are high. Unforeseeable operating problems are not unusual and are often expensive. Capital costs are high. Fluctuating commodity prices may make development or continued operation of a mine unattractive to investors. Many of these factors are beyond the ability of governments or corporations to change.

19.100 There are other factors more closely tied to government initiatives that affect the operating environment of the industry and that are important for sustained mineral exploration and development in the North. In 1986, the federal government put forward a Northern Mineral Policy to create a climate of greater certainty for northern mining, to increase the industry's competitiveness, and to encourage closer co-operation between the industry, the government, and the public.

19.101 In the North, creating business certainty is a challenge, especially for mining. Unfortunately, the regulatory and approval processes are slow, often confusing, and sometimes unpredictable, because they involve many government agencies and pieces of legislation administered from two territorial capitals and Ottawa. Furthermore, land claims negotiations and subsequent implementation and environmental initiatives have an effect over time on mineral exploration and development. Along with worldwide market trends, these uncertainties affect the climate for investing in the mining sector in the North. There has not been any significant growth in the past few years. (See Exhibit 19.4.)

Exhibit not available

Audit Scope

Observations and Recommendations

DIAND needs to evaluate its geoscientific information services

19.104 DIAND should analyse the adequacy of its dissemination of geoscientific information and conduct periodic program evaluations of its mineral resources management activities.

Department's response: The Department agrees with the recommendation.

Rates for fees, rentals, and royalties from mineral activities need updating

19.107 The royalty for gold placer mining was originally based on 2.5 percent of the value of raw gold at $15 per ounce, which is obviously far below today's price for gold. It is payable only upon export from the Yukon, and its collection is based on an honour system. The quantity of gold shipped is either weighed at the Mining Recorder's office or declared. There is no control in place to ensure that all gold shipped out of the Yukon has been reported, and consequently, that all royalties are collected.

19.108 DIAND should review and revise the rate structure for fees and rentals on mineral lands. It should also consider alternative methods for calculating and collecting placer royalties.

Department's response: The Department will review mining fees, rentals and royalties in its effort to modernize northern mining legislation.