Yellowknife (May 02/05) - The future of the Mackenzie gas pipeline depends on negotiations with First Nations and regulators, say proponents who stopped work on the project late last week.

"Substantial progress will need to be made prior to the start of public hearings to allow the project to continue," warned Mike Yeager, senior vice-president of Imperial Oil.

Yeager said proponents of the $7 billion project - Imperial, ConocoPhillips, ExxonMobil, Shell Canada and the Aboriginal Pipeline Group - will focus on resolving access and benefits agreements and the regulatory process.

Project proponents had discussed their issues with government and community leaders before last week's announcement.

"This is a wake-up call, not a bluff," said NWT Investment Minister Brendan Bell.

Access agreements with First Nations are the main sticking point, Bell said.

"If there is no progress by fall, then we're in trouble. People see how much the companies have invested and think they can't pull out, but they have assets all over the world. They will start to move (elsewhere) and develop that. They will switch their focus."

Yeager said Imperial will re-evaluate its progress before the joint review panel is expected to begin public hearings in the fall.

"We are not giving up on developing a project that can be a sound investment for the proponents and can contribute to sustained economic development for the people of Canada's north," Yeager said.

But they have stopped most work on the project, including geotechnical data gathering, the start of detailed engineering, as well as work leading up to contracting for construction.

Negotiations with First Nations are confidential, but their demands are "many, many fold: into the hundreds of millions of dollars beyond what are clearly not the responsibility of the current project," Yeager said.

"They make requests to deal with existing social issues that would more rightly be made of the territorial and federal governments," he said.

The regulatory process is "months behind and we can't have more slippage. We're struggling with simple field permits and we shouldn't be," Yeager said.

Former premier Stephen Kakfwi, now a consultant with the K'asho Got'ine Dene council in Fort Good Hope, said aboriginal governments have been clear about what they want. "We said we want a property tax on the project that's comparable to other jurisdictions like B.C., the Yukon, and Saskatchewan," said Kakfwi.

"We want to put a surcharge on the pipe and try and make it cost neutral for Imperial.

"These are examples of revenue sources the federal government and the GNWT support immediately. I think all of us in the valley would come together and push the project through. Really, that's all that's holding it up."

The companies have spent $350 million over the last five years; the 300 employees and contractors involved will be focused on fundamental aspects of the project, Yaeger said.

"If the Mackenzie Gas Project is going to proceed, some things are going to have to be adjusted and changed substantially," he said.