Doug Ashbury
Northern News Services

Yellowknife (Jan 19/00) - A new report pegs the territorial government's tax take from the proposed Diavik mine as pea-sized compared to the giant harvest reaped by the federal government.

"If the impact of all direct and secondary taxes on direct production were considered, the GNWT would receive $568 million while the federal government would receive $2.35 billion, according to an Ellis Consulting Services' report on the distribution of the Diavik project's resource income.

"After the impact on the formula financing agreement is taken into account, the GNWT's net revenues would fall to $101 million and the federal government net revenues would rise to $2.82 billion," says the report that was released on Friday.

The GNWT gets about 80 per cent of its total annual revenues from the federal government. When other revenues increase, the formula financing grant falls.

"Finding new revenues is certainly the biggest challenge (of the new government)," Finance Minister Charles Dent said Monday.

"We can't support the difference between our revenues and expenditures. I see this (revenue from resources) as the area with the most potential in the short to mid term," he said.

Dent, who has seen the report, said the GNWT -- which adds federal government savings to its calculations -- estimates the total federal benefit as high as $4.4 billion. Gross numbers may be somewhat different but the percentages coincide with the GNWTs, he adds.

"It is clear to most observers that project would have the potential to provide significant benefits to the investors from profits generated by the mine.

"It is not so obvious that the mine would also provide benefits to other sectors of the economy including substantial tax revenues to the government sector," the report said. Roy Ellis at Ellis Consulting in Yellowknife could not be reached for comment Monday.

As for the overall tax benefit to territorial and federal as well as local governments, the report estimates Diavik will pay a total of $3.5 billion to $3.7 billion in taxes.

Diavik's estimated 101.5 million carats are worth an estimated $8.5 billion in resource income.

Taking into account direct and secondary taxes, the $8.5-billion resource income would be broken down into:

- Operating costs accounting for $2.2 billion of resource income.

- Diavik's owners would recover $1.2 billion in capital costs.

- Diavik's owners would earn $1.9-billion profit.

- Governments would receive $3.2 billion in taxes. If taxes paid to local governments and taxes on distribution of profit are included, the government's share rises $300 million to $500 million. Other indirect tax benefits would push the total government tax revenues to the $3.5 billion to $3.7 billion figure cited above.

All figures are in constant 1998 dollars.

Diavik is scheduled to go into production in 2003 and have a 20-year mine life.

The report also reveals just how dramatic the costs associated with building the mine are. Life of mine capital costs are estimated at $2 billion, which includes the $1.3 billion to build the mine as well as ongoing and other costs.

Among those other costs is the expense of building two dykes -- dykes are needed because the diamond-bearing kimberlite pipes are located under water -- which is estimated at $263 million.

So far, $206 million has been spent to bring the project to the verge of commencement of construction. That amount was spent over the past five years.

The biggest bucks will be spent over the next four years.

Some $123 million is to be spent this year while $430 million will be spent in each of the following two years.

Costs in 2003 are estimated at $246 million.