Richard Gleeson
Northern News Services

NNSL (May 25/98) - The territorial government found itself playing a game of catchup on secondary diamond industries over the last year.

BHP had signed and lived up to all the agreements involved in producing Canada's first diamonds.

But when public awareness of the value of a secondary diamond industry grew, so did pressure on the government to do something to foster it. Resources, Wildlife and Economic Development Minister Stephen Kakfwi found himself in the delicate position of asking BHP for more.

YKlife: Has the government agreed never to raise the issue of new taxes on BHP again?

SK: No. We didn't have to say it publicly for people to know that governments always have the power to tax. All we've said is this government will not raise the issue of taxation with BHP again. I think we need to recognize BHP is a good corporate citizen, in my view an outstanding corporate citizen, and quit threatening them and treat them with the respect and dignity they deserve.

YKlife: During discussion of secondary diamond industries with BHP, there seemed to be two messages coming from the government, one from you and one from John Todd (who threatened to introduce a tax regime that would "choke a mule" if BHP refused to sell to Northerners). Was that planned?

SK: There's always a style of negotiating publicly, posturing. You can also do it largely in-house, privately. The minister of finance has a mandate to represent the government on certain issues, and taxation is one of them. I was the lead minister on diamonds, and I've been the only minister meeting with BHP since last fall.

Had I been the only one negotiating, would I have done all of the things that were done? Probably not.

YKlife: When you say "all the things" do you --

SK: I mean I would not have said "If you don't produce I'll introduce a tax to choke a mule." I mean, you can't threaten them then call up and ask for a meeting. The taxation issue could have been brought up privately.

YKlife: But did bringing the threat of a new taxes help negotiations?

SK: It increased the pressure, but it negated the degree of good will we had tremendously. My impression was that the company and industry were not so alarmed at the threat of the tax as the impression that this government was more and more volatile and perhaps unpredictable.

YKlife: Will the diamond sorting plant that will be established here be doing sorting for market?

SK: No. Initially, it will be sorting for valuation purposes.

With time, as we develop the experience, BHP has said it will look at sorting for market.

What will happen now is they will fly the diamonds in here. There will be maybe 14 people working in the sorting facility. They will sort it so a government evaluator can come in and assess the value of it. Then BHP will fly it to Antwerp, where it will be sorted for market. And some of it will come back here.

Yklife: Will there be diamonds coming back here from the start?

SK: A number of companies that have access agreements to Ekati mine diamonds will fly to Antwerp, buy the diamonds, and bring them back here to cut and polish them.

Yklife: We don't have a private sector that deals with diamonds right now. How is that going to develop?

SK: What we have is people that are interested in training to be cutters and polishers and valuators. Our private sector is going to be asked by diamond companies, cutters and polishers, to go into business with them. That's the way we're going to start.

Yklife: What incentives are there for diamond manufacturers from Antwerp and Belgium to hire and train Northerners?

SK: The situation that is very probable is that a company that does cutting and polishing will set up shop in Yellowknife, buy equipment, rent or lease facilities, probably with Northern partners.

They will bring in experienced cutters and polishers. Because the diamonds will be of high qualities, only very skilled, highly qualified cutters and polishers will be allowed to work on them. We will work with these companies to set up training programs, to train Northern people and aboriginal people to get into the diamond business.

YKlife: What motivation does BHP have to sell its rough to businesses with Northern ties, as opposed to businesses from, say, Antwerp?

SK: It's our expectation, and BHP knows it, that these companies, whether they are from Edmonton or Toronto or Vancouver or Victoria, have to have Northern or aboriginal partners to set up their operations up here.

Yklife: If operating in the North would include a restriction that would not apply in the South, why would companies set up shop here?

SK: BHP sells to whoever they want. At this time BHP sees some merit in selling to people who are going to do business with Northern people.

These businesses are now buying most of their diamonds from Antwerp. What they want is access to BHP diamonds so they can say they are cutting and polishing Canadian Arctic diamonds in the North. These are not going to be just diamonds, these will be Canadian Arctic diamonds.