CLARIFICATION OF GOVERNMENT OF CANADA NOVA SCOTIA RESPECTING

UNDERLYING FUNDAMENTALS • NOVA SCOTIA TO BE PRINCIPAL BENEFICIARY OF ITS OFFSHORE RESOURCES •

ALTERNATIVE FORMULA EXPERT PANEL • Calculation of entitlements based on 3 -year average •

ESTIMATED FINANCIAL IMPLICATIONS EXPERT PANEL VS. ALTERNATIVES & ACCORD ($billions) 2008 -09 2011 -12

CROWN SHARE ADJUSTMENT PAYMENT • Joint independent 3 -member panel to be established •

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CLARIFICATION OF GOVERNMENT OF CANADA & NOVA SCOTIA RESPECTING OFFSHORE REVENUES October 10, 2007 PCDocs#52191

UNDERLYING FUNDAMENTALS • NOVA SCOTIA TO BE PRINCIPAL BENEFICIARY OF ITS OFFSHORE RESOURCES • FEDERAL COMMITMENT TO A CUMULATIVE ‘BEST OF’ GUARANTEE • CHOICE OF EXPERT PANEL OR EQUALIZATION FORMULA OF 2005 ACCORD • INDEPENDENT PANEL TO ACTION CROWN SHARE ADJUSTMENT COMMITMENT

ALTERNATIVE FORMULA EXPERT PANEL • Calculation of entitlements based on 3 -year average • Uses two-year lagged data • Retains representative tax system (RTS) approach for fiscal capacity • Includes cap and potential clawback 2007 FEDERAL BUDGET • Based on 3 -year historical average of provincial fiscal capacity • National equalization value set to escalate by 3. 5 percent annually NEW ALTERNATIVE • Restores formula agreed upon by First Ministers in Fall 2004 • Formula based on 50/50 entitlements and fiscal capacity • Uses 3 -year average of entitlement share + 3 -year average of fiscal capacity approach • National equalization value to escalate by 3. 5 percent annually

ESTIMATED FINANCIAL IMPLICATIONS EXPERT PANEL VS. ALTERNATIVES & ACCORD ($billions) 2008 -09 2011 -12 2019 -20 (cumulative) Expert Panel 1. 579* Federal Budget Alternative 1. 520* 11. 442 11. 742 24. 314 25. 280 New Alternative 2005 Accord 12. 043 12. 349 25. 840 25. 611 Base-lined estimates assuming no changes to fiscal capacity or population. Includes Nova Scotia’s estimated offshore natural resource revenues. *2008 -09 Estimates provided by Finance Canada 1. 592 1. 634

CROWN SHARE ADJUSTMENT PAYMENT • Joint independent 3 -member panel to be established • Panel to determine method of calculation of value of crown share adjustment • Federal obligation to make ensuing crown share adjustment payments to Nova Scotia • Panel to report its recommendations to both levels of government by March 15, 2008 • Nova Scotia’s projected value of crown share in the $100 s of millions on currently producing offshore fields