Western Potash Corp. Renegotiation Report - Supplementary

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Department:	Office of the City Clerk	Sponsors:
Category:	Other Reports

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CONCLUSION

With the tabling of report FA 16-37 to the January 10, 2017 Finance and Administration Committee meeting, the Administration was not able to re-negotiate the provisions of the Non-Potable Water Access Agreement with Western Potash Corp. (WPC) prior to the January 1, 2017 deadline. At the deadline, the City of Regina (City) was to receive a $200,000 stand-by payment from WPC that would reserve WPC’s water access during the 2017 calendar year.

As the obligation of WPC to make the $200,000 stand-by payment on or before January 1, 2017 remains in place, the Administration has provided WPC with a forbearance letter. The letter advised WPC that although the obligation to make the January 1, 2017 stand-by payment remains in place, the Administration will not take steps to enforce the payment obligation until appropriate direction has been provided by City Council. This action was taken in order to protect the City’s interests under the Agreement and to reserve the potential for the City to negotiate mutually beneficial amendments to the agreement with WPC that would permit WPC’s project to proceed and the City to pursue other opportunities to provide treated effluent to other industrial users.

In addition to providing additional information to the Finance and Administration Committee in this report, the Administration is asking that recommendation #5 of FA 16-37, Western Potash Corp. - Payment Extension & Renegotiation of Agreement (Report), be amended to read: “That the report be forwarded to the January 30, 2017 meeting of City Council for approval”.

BACKGROUND

The original report FA 16-37, Western Potash Corp. - Payment Extension & Renegotiation of Agreement, went forward to the Finance and Administration Committee for consideration on December 6, 2016 and was tabled to the January 10, 2017 committee meeting for further consideration, as there were some questions relating to the payments due under the agreement and the process that would be followed if the necessary payments were not made by WPC.

DISCUSSION

A summary of the payments under the Non-Potable Water Access Agreement between the City and WPC are as follows:

1) On signing the Agreement, WPC paid the City a $500,000 commitment fee. This sum is held by the City and was to be credited against the future annual fees WPC would incur for water access under the Agreement if WPC began drawing treated effluent from the City prior to January 1, 2017. As this date has passed and WPC has not commenced drawing treated effluent from the City, this $500,000 is forfeited to the City.

2) As WPC is not drawing treated effluent from the City prior to the January 1, 2017 deadline in the Agreement, a $200,000 stand-by fee must be paid annually for each year that water does not flow in order for the City to “hold” WPC’s reserved capacity, up to and including 2019. Any stand-by fees paid by WPC to the City are non-refundable and are not credited against future fees under the Agreement.

To date, WPC has not commenced construction of the required infrastructure to begin drawing treated effluent from the City and as a result, the $200,000 stand-by fee payable on January 1, 2017 has not been provided to the City. WPC’s failure to provide the stand-by fee payment to the City is a breach of the Agreement and the City can take steps to enforce the obligation or to terminate the Agreement. The process to do so involves the provision of certain notices by the City as is required by the Agreement.

The Administration has provided WPC with a forbearance letter advising WPC that although the obligation to make the $200,000 January 1, 2017 stand-by payment remains in place, the Administration will not take steps available under the Agreement until appropriate direction has been provided by City Council.

All of the terms and conditions of the original Non-Potable Water Access Agreement will remain in effect. The Administration has reserved the potential for the City to negotiate mutually beneficial amendments to the agreement with WPC, should City Council provide approval to do so. The Administration is actively pursuing other opportunities to provide treated effluent to another industrial user, so if amendments with WPC are agreed to, this would permit WPC’s project to proceed and the City to pursue other opportunities that would provide additional revenue to the City.

RECOMMENDATION IMPLICATIONS

Financial Implications

Forbearance of the $200,000 stand-by fee payment, ensures that all of the terms and conditions of the original Non-Potable Water Access Agreement remain in effect, until such time as City Council considers matters and reserves the potential for the City to negotiate mutually beneficial amendments to the agreement with WPC.

Environmental Implications