EX-99.1 2 y75364exv99w1.htm EX-99.1: CURRENT PROVINCE OF NOVA SCOTIA DESCRIPTION EX-99.1
Exhibit 1
(GRAPHIC)
Province of Nova Scotia
(Canada)
This description of the Province of Nova Scotia is dated as of March 11, 2009 and appears as Exhibit (1) to the Province of Nova Scotia’s Annual Report on Form 18-K to the U.S. Securities and Exchange Commission for the fiscal year ended March 31, 2008.

 


 

     This document (otherwise than as a prospectus contained in a registration statement filed under the Securities Act of 1933) does not constitute an offer to sell- or the solicitation of an offer to buy any Securities of the Province of Nova Scotia. The delivery of this document at any time does not imply that the information herein is correct as of any time subsequent to its date.
TABLE OF CONTENTS
         
    Page  
 
Further Information
    2  
Forward-Looking Statements
    3  
Summary
    4  
Map of Nova Scotia
    5  
Introduction
       
Overview
    6  
Political System
    6  
Constitutional Framework
    7  
General Issues
    8  
Economy
       
Principal Economic Indicators
    10  
Recent Developments
    12  
Economic Structure
    13  
Population and Labor Force
    14  
Income and Prices
    16  
Capital Expenditures
    17  
Goods Producing Industries
    19  
Exports
    23  
Service Sector
    25  
Energy
    26  
Government Finance
       
Overview
    29  
Specific Accounting Policies
    29  
Accounting Changes
    31  
Summary of Budget Transactions and Borrowing Requirements
    34  
Revenue
    36  
Program Expenditures/Expenses
    41  
Loans and Investments
    44  
Provincial Debt
       
Funded Debt
    47  
Derivative Financial Instruments
    48  
Debt Maturities and Sinking Funds
    50  
Current Liabilities
    52  
Guaranteed Debt
    52  
Pension Funds
    53  
Public Sector Debt
       
Public Sector Funded Debt
    58  
Certain Crown Corporations and Agencies
       
Sydney Steel Corporation
    59  
Sydney Tar Ponds Agency
    59  
Nova Scotia Resources Limited
    60  
Nova Scotia Municipal Finance Corporation
    60  
Nova Scotia Power Finance Corporation
    60  
Foreign Exchange
    62  
Official Statements
       
Table 1 — Statement of Debentures Outstanding
    64  
 
FURTHER INFORMATION
     This document appears as an exhibit to the Province of Nova Scotia’s Annual Report to the U.S. Securities and Exchange Commission (“SEC”) on the Form 18-K for the fiscal year ended March 31, 2008. Additional information with respect to the Province of Nova Scotia is available in such Annual Report, the other exhibits to such Annual Report, and in amendments thereto. Such Annual Report, exhibits and amendments can be inspected and copied at the public reference facility maintained by the SEC at: Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such documents may also be obtained at prescribed rates from the Public Reference Section of the Commission at its Washington address or, without charge, from Province of Nova Scotia, Department of Finance, Deputy Minister of Finance, PO Box 187, 7th Floor, 1723 Hollis Street, Halifax, Nova Scotia, Canada, B3J 2N3.
     The SEC maintains an Internet site that contains reports, statements and other information regarding issuers that file electronically with the SEC. The address for the SEC’s Internet site is http://www.sec.gov.
     
 
     In this document, unless otherwise specified or the context otherwise requires, all dollar amounts are expressed in Canadian dollars. On March 11, 2009 the closing spot rate for the U.S. dollar in Canada, as reported by

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the Bank of Canada, expressed in Canadian dollars, was $1.2862 See “Foreign Exchange” for information regarding the rates of conversion of U.S. dollars and other foreign currencies into Canadian dollars. The fiscal year of the Province of Nova Scotia ends March 31. “Fiscal 2008” and “2007-2008” refers to the fiscal year ending March 31, 2008, and unless otherwise indicated, “2007” means the calendar year ended December 31, 2007. Other fiscal and calendar years are referred to in a corresponding manner. Any discrepancies between the amounts listed and their totals in the tables set forth in this document are due to rounding.
FORWARD-LOOKING STATEMENTS
     This exhibit includes forward-looking statements. The Province of Nova Scotia has based these forward-looking statements on its current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties, and assumptions about the Province of Nova Scotia, including, among other things:
    the Province of Nova Scotia’s economic and political trends; and
 
    the Province of Nova Scotia’s ability to control expenses and maintain revenues.
     In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this annual report might not occur.

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SUMMARY
The information below is qualified in its entirety by the detailed information provided elsewhere in this document.
PROVINCE OF NOVA SCOTIA
                                         
Economy   Year Ended December 31
    2003   2004   2005   2006   2007
    (in millions unless otherwise indicated)
Gross Domestic Product at Market Prices
  $ 28,851     $ 29,853     $ 31,275     $ 31,737     $ 33,010  
Personal Income
    24,437       25,394       26,625       27,612       28,917  
Capital Expenditures
    5,654.1       5,696.9       6,004.9       6,337.4       6,229.1  
Annual Increase in Consumer Price Index
    3.4 %     1.8 %     2.8 %     2.0 %     1.9 %
Population by July 1 (in thousands)
    936.5       938.0       936.0       935.1       934.1  
Unemployment Rate
    9.1 %     8.8 %     8.4 %     7.9 %     8.0 %
                                         
Revenues and Expenses — Consolidated Entity   Fiscal Year Ended March 31  
    Restated     Restated   Restated        
    2004(1)(4)     2005(2)     2006(3)     2007     2008  
    (in millions)  
Revenues
  $ 6,056.4     $ 6,998.3     $ 7,527.5     $ 7,952.4     $ 8,908.4  
Current Expenses
    6,360.4       7,177.7       7,634.1       8,110.6       8,833.6  
 
                             
Surplus (Deficit) from Governmental Units
    (304.0 )     (179.4 )     (106.6 )     (158.2 )     74.8  
Net Income from Government Business Enterprises
    333.4       349.5       345.4       340.6       344.2  
 
                             
Provincial Surplus / (Deficit) before Unusual Item
    29.4       170.1       238.8       182.4       418.9  
 
                                       
Unusual Item (5)
    8.7       0.0       0.0       0.0       0.0  
 
                             
 
                                       
Provincial Surplus/(Deficit) (6)
  $ 38.1     $ 170.1     $ 238.8     $ 182.4     $ 418.9  
 
                             
                                         
Public Sector Funded Debt   As at March 31  
    2004     2005     2006     2007     2008  
    (in millions unless otherwise indicated)  
Total Provincial Funded Debt
  $ 13,617.2     $ 12,461.6     $ 11,404.4     $ 11,718.3     $ 11,032.7  
Total Guaranteed Debt
    463.7       415.9       418.9       409.6       380.7  
Total Underlying Debt
    12.7       14.2       18.2       22.6       22.5  
 
                             
Total Public Sector Funded Debt
    14,093.6       12,891.7       11,841.5       12,150.5       11,436.0  
 
                             
Less: Sinking Funds, Public Debt Retirement Fund
    2,919.8       2,599.4       2,094.8       1,906.8       2,011.9  
 
                             
Net Public Sector Funded Debt
  $ 11,173.8     $ 10,292.3     $ 9,746.7     $ 10,243.7     $ 9,424.1  
 
                             
 
                                       
Per Capita ($)
  $ 11,931.4     $ 10,972.6     $ 10,413.1     $ 10,954.7     $ 10,088.9  
As a Percentage of:
                                       
Personal Income
    45.7 %     40.5 %     36.6 %     37.1 %     32.6 %
Gross Domestic Product at Current Market Prices
    38.7 %     34.5 %     31.2 %     32.3 %     28.6 %
 
(1)   Restated to reflect accounting changes in fiscal year 2004-2005. See “Government Finance — Accounting Changes”.
 
(2)   Restated to reflect accounting changes in fiscal year 2005-2006. See “Government Finance — Accounting Changes”.
 
(3)   Restated to reflect accounting changes in fiscal year 2006-2007. See “Government Finance — Accounting Changes”.
 
(4)   For fiscal years 2005, 2006, 2007 and 2008, there are recoveries, fees and other charges that were reclassified. For 2004, these amounts are netted against expenses, for 2005 to 2008 they are included as revenue. The 2004 figures are therefore not directly comparable to the 2005 to 2008 figures.
 
(5)   Gain on sale of NSRL assets: $8.7 million in fiscal year 2003-2004.
 
(6)   As of December 19, 2008, the Province is forecasting a surplus of $212.9 million for fiscal year 2008-09.

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MAP
(MAP)

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INTRODUCTION
Overview
          The Province of Nova Scotia (“Nova Scotia” or the “Province”) is the most populous of the four Atlantic Provinces of Canada (“Atlantic Canada”) and covers 20,402 square miles. It extends 360 miles in length and varies in width from 50 miles to 105 miles.
          According to estimates issued by Statistics Canada, the population of Nova Scotia was 938,310 as of July 1, 2008, and represented 2.8% of Canada’s population of 33.3 million. The largest urban concentration in Atlantic Canada is the Halifax Regional Municipality (“Halifax”). Halifax Census Metropolitan Area, situated centrally on the Atlantic coast of the province, had a population of 385,457 as of July 1, 2007. Halifax, the capital of Nova Scotia, is the commercial, governmental, educational, and financial center of the province, and is also the location of an important naval base.
Political System
          The Legislature of Nova Scotia consists of the Lieutenant Governor and the Nova Scotia House of Assembly. The Nova Scotia House of Assembly is elected by the people for a term not to exceed five years. It may be dissolved at any time by the Lieutenant Governor on the advice of the Premier of the Province, who is traditionally the leader of the majority party in the Nova Scotia House of Assembly.
          The last Provincial general election was held on June 13, 2006. The Progressive Conservative Party was elected to a minority government and holds 22 seats in the House of Assembly. The official opposition in the House of Assembly is the New Democratic Party with 20 seats. The Liberal party holds 9 seats and there is 1 independent Progressive Conservative member.
          The executive power in the Province is vested in the Governor-in-Council, comprising the Lieutenant Governor acting on the advice of the Executive Council. The Executive Council is responsible to the House of Assembly. The Governor General of Canada in Council appoints the Lieutenant Governor, who is the representative of the Queen in the Province. Members of the Executive Council are appointed by the Lieutenant Governor, normally from members of the House of Assembly, on the nomination of the Premier.
          The Parliament of Canada is composed of the Queen represented by the Governor General, the Senate, whose members are appointed by the Governor General upon the recommendation of the Prime Minister of Canada, and the House of Commons, whose members are elected by the people. The people of Nova Scotia are entitled to send 11 elected representatives to the 308 member House of Commons. Ten Senators represent Nova Scotia in the Senate.
          There are five levels of courts in the province. The Nova Scotia Court of Appeal is the general court of appeal in both civil and criminal matters. The Supreme Court of Nova Scotia is a court of original jurisdiction and as such has jurisdiction in all cases, civil and criminal, arising in the province except those matters or cases expressly excluded by statute. The Provincial Court is a court of record and every judge thereof has jurisdiction throughout the province to exercise all the power and perform all the duties conferred or imposed on a judge of the Provincial Court. In addition to hearing matters relating to provincial statutes and municipal by-laws, the Provincial Court is specifically authorized to hear certain matters under the Criminal Code of Canada. The Family Court is a court of summary procedure with jurisdiction in family matters including maintenance, child protection, child custody and family violence. The Family Court is designated as a Youth Court for hearing matters involving young people aged 12-15 inclusive. The Probate Court has jurisdiction and power to carry out the judicial administration of the estates of deceased persons and to hear and determine all questions, matters and things in relation thereto and necessary for such administration.

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Constitutional Framework
          Similar to the British Constitution, the Constitution of Canada (the “Constitution”) is not contained in a single document, but consists of a number of statutes, orders, and conventions. Canada is a federation of ten provinces and three Federal territories, with a constitutional division of responsibilities between the Federal and provincial governments, as set forth in The Constitution Acts, 1867 to 1982. The Constitution Acts are divided into two fundamental documents. The Constitution Act, 1867 (formerly the British North America Act, 1867), provides for the federation of British North America provinces, and the Constitution Act, 1982 (the “1982 Act"), enacted by the parliament of the United Kingdom, provides, among other things, that amendments to the Constitution be effected in Canada according to terms of an amending formula.
          The 1982 Act also includes a Charter of Rights and Freedoms, which encompasses language rights, Aboriginal rights, principles of the reduction of regional economic disparities, and the making of fiscal equalization payments to the provinces by the Government of Canada, including an enumeration of other Acts and orders which are part of the Constitution.
Under the Constitution, each provincial government has exclusive jurisdiction to regulate:
    health;
 
    education;
 
    municipal institutions;
 
    property and civil rights;
 
    forestry and non-renewable natural resources;
 
    social services;
 
    other matters of purely provincial or local concern;
 
    raise revenue through direct taxation within its territorial limits; and
 
    borrow monies on the credit of the province.
          The Federal Parliament of Canada is empowered to raise revenue by any system of taxation, and generally has jurisdiction over matters or subjects not assigned exclusively to the provincial legislatures. It has exclusive authority over such enumerated matters as:
    the Federal public debt and property;
 
    the borrowing of money on the public credit of Canada;
 
    the regulation of trade and commerce;
 
    currency and coinage;
 
    banks and banking;
 
    national defense;
 
    the postal service;
 
    shipping; and
 
    navigation.
          As a province of Canada, Nova Scotia could be affected by political events in another province. For instance, on September 7, 1995, the Government of Quebec presented a Bill to the National Assembly entitled An

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Act respecting the future of Quebec (the “Act”) that included, among others, provisions authorizing the National Assembly to proclaim the sovereignty of Quebec. The Act was to be enacted only following a favorable vote in a referendum. Such a referendum was held on October 30, 1995. The results were 49.4% in favor and 50.6% against.
          In 1996, the Government of Canada, by way of reference to the Supreme Court of Canada (the “Supreme Court”), asked the court to determine the legality of a unilateral secession of the Province of Quebec from Canada, either under the Canadian Constitution or international law. On August 20, 1998, the Supreme Court of Canada ruled that the Province of Quebec did not have the unilateral right of secession, and that any proposal to secede authorized by a clear majority in response to a clear question in the referendum should be construed as a proposal to amend the Constitution, which would require negotiations. These negotiations would have to deal with a wide array of issues, such as the interest of the other provinces, the Federal Government, the Province of Quebec, and the rights of all Canadians both within and outside the Province of Quebec, and specifically, the rights of minorities, including Aboriginal peoples.
General Issues
Current Issues Concerning Native Persons
          The Mi’kmaq are the First Nations peoples of Nova Scotia and are descendants of the aboriginal people who resided in Nova Scotia prior to European contact.
          In 1999, the Supreme Court of Canada delivered two decisions in the case of R. v. Marshall that acknowledge, and at the same time, place limits upon, Mi’kmaq treaty rights to obtain a moderate livelihood from fishing, hunting, and gathering. See “Economy — Goods Producing Industries — Fisheries” for further details.
          The Federal Court of Appeal, during the approval process for the Maritimes & Northeast Pipeline, ruled that the National Energy Board (“NEB”) was required to ensure proper participation of Mi’kmaq organizations in its decision-making process respecting its construction and operation. Maritimes & Northeast Pipeline and the Mi’kmaq of Nova Scotia have settled this matter. However, there are pending legal actions against the Province by the Mi’Kmaq respecting: a) claims to aboriginal title to the lands on which the Maritimes & Northeast Pipeline Project is constructed; and b) claims arising out of an alleged failure by government to consult in relation to those lands. These actions have not proceeded beyond the preliminary pleadings stage since the actions were initiated in 1999-2000.
          In February 2007, the Mi’kmaq of Nova Scotia, the Federal Government and the Province signed a Framework Agreement that established a long-term negotiation process to resolve issues pertaining to Mi’kmaq treaty rights, Aboriginal rights and Aboriginal title. The Framework Agreement identifies the issues to be negotiated, goals, procedures and a time-table for negotiations. The first step in the negotiations will be to conduct a preliminary review of each topic and develop the key questions and issues in more detail. This process is currently underway.
Audit of Governance and Control Framework
          In fiscal year 2003-2004, the Province commissioned the firm of Deloitte Touche LLP to conduct an independent audit of the governance and control practices within the Nova Scotia Department of Finance. The objectives for this governance and controls assessment were to provide assurance that the objectives, policies, and procedures are consistent with the Department’s strategic plan; that major risks have been identified and to ensure that controls are in place to minimize risks.
          The Deloitte audit found that significant deficiencies existed with respect to the governance and control within the Nova Scotia Department of Finance. The audit concluded that actions must be taken to correct these deficiencies. The report also stated “fundamental governance structures and critical management controls, based on accepted practices, are not sufficiently in place to support the prudent management of assets. Accordingly, we are unable to provide assurance with respect to the objectives of the audit.” Further it was found that there existed within the current Debt Management Committee a “...lack of approved policies and procedures; and lack of certain competencies necessary to perform their delegated responsibilities.”

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          The report contained a number of recommendations pertaining to the governance and control functions within the Department of Finance. The most significant recommendations included the restructuring of the then existing Debt Management Committee into a governance body. This restructuring included changes to both the role and membership of the Debt Management Committee. The formalization of a comprehensive strategic debt management plan was also a key recommendation of the report.
          It was further found that there existed a need for an independent function within the Department of Finance to monitor and conduct compliance reviews of Liability Management and Treasury Services and Investment Division activities. The recommendation suggested that this function be achieved through the creation of a “Middle Office” to oversee day-to-day control and monitoring of financial transactions.
          The Department of Finance developed action plans to respond to the report’s recommendations. The objective was to adhere to the overall spirit of the Deloitte recommendations where they were consistent with existing Provincial legislation. Additional research was conducted in instances where the recommendations were not specific or were inconsistent with existing Provincial legislation. The actions undertaken included a revamp of the Debt Management Committee (including changes to membership, policies and procedures); revising the Investment Advisory Committee (including changes to policies, procedures and processes). Additional policies such as the Trading and Signing Authority Policy, Conflict of Interest Policy, Statement of Investment Policy and Goals, and the Treasury Management Policy were approved by the Minister of Finance. A “middle office” function, reporting to senior management, has been established in the Department of Finance.
Litigation
          Residents and former residents of Sydney and the surrounding area in Nova Scotia have commenced a proposed class action lawsuit against the Province seeking damages for injury to health and diminution of property resulting from the operation of the Sysco steel plant (which was previously owned by the Provincial Government) and the claim that the Province failed to remediate the site. The plaintiffs issued a statement of claim in March of 2004. Applications were heard and the claim amended and further amended. An application to strike parts of the claim was heard and a decision was rendered in June 2006 striking claims of regulatory negligence against Nova Scotia. An appeal of the decision not to strike a claim of breach of fiduciary duty is the subject of an application for leave to appeal to the Supreme Court of Canada and is pending. The Province is unable to assess the likelihood of loss or estimate the amount of ultimate loss at this time.
          The Province has settled the claim with Canada Life Assurance Company that was described in the Province’s Form 18-K for the year ended March 31, 2007.

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ECONOMY
          Nova Scotia has a diversified economy. The geographic location of Nova Scotia, being surrounded almost completely by water with more than 7,400 kilometers of coastline, has significantly contributed to the economy. The importance of the sea to the economy is witnessed in many industries such as fishing and aquaculture, oil and gas, naval defense, tourism, transportation and research.
          While many of the goods and services producing industries are directly or indirectly related to the processing of Nova Scotia’s natural resources such as pulp and paper products, natural gas and seafood products, the provincial economy is also diversified into information age technologies and other goods as diverse as motor vehicle tires.
          Exports are important to the economy of Nova Scotia as roughly 50% of all goods produced in Nova Scotia are exported, and, of that figure, approximately 75% are exported to the United States.
          Nova Scotia’s service sector is disproportionately larger than that of Canada as a whole. Much of this is due to Nova Scotia’s geographic location, which establishes it as the hub of the four Atlantic Provinces and therefore casts it as a natural regional service center.
Principal Economic Indicators
          The economy of Nova Scotia is influenced by the economic situation of its principal trading partners in Canada and abroad, particularly the United States. In 2007, Nova Scotia’s gross domestic product (“GDP”) at market prices was $33.0 billion, or 2.1% of Canada’s GDP. Compared with the levels for 2006, real GDP in chained 2002 dollars for Nova Scotia and Canada increased by 1.7% and 2.7%, respectively, in 2007. Total exports of goods and services from Nova Scotia, to both international and inter-provincial destinations, in 2007 increased by 1.5%. Manufacturers’ shipments in 2007 increased by 1.7% for Nova Scotia compared to an increase of 0.4% for Canada.

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          The following table sets forth certain information about economic activity in Nova Scotia and, where provided, Canada, for the calendar years 2003 through 2007.
SELECTED ECONOMIC INFORMATION
                                                 
                                            Compound
                                            Annual
                                            Rate of
    2003   2004   2005   2006   2007   Growth(1)
    (In millions unless otherwise indicated)        
 
                                               
Gross Domestic Product (Nova Scotia)
                                               
At Market Prices (2)
  $ 28,851     $ 29,853     $ 31,275     $ 31,737     $ 33,010       3.4 %
Chained 2002 Dollars
    27,464       27,710       28,069       28,328       28,803       1.2 %
Gross Domestic Product (Canada)
                                               
At Market Prices (2)
    1,213,175       1,290,906       1,372,626       1,450,490       1,535,646       6.1 %
Chained 2002 Dollars
    1,174,592       1,211,239       1,246,064       1,284,819       1,319,681       3.0 %
Personal Income
    24,437       25,394       26,625       27,612       28,917       4.3 %
Personal Income per capita (3)
    26,094       27,074       28,446       29,530       30,956       4.4 %
Capital Expenditures
    5,654.1       5,696.9       6,004.9       6,337.4       6,229.1       2.5 %
Retail Trade
    10,015       10,297       10,527       11,192       11,638       3.8 %
Value of Manufacturers’ Shipments
    9,107       9,630       10,064       9,712       9,875       2.0 %
Unemployment Rate
    9.1 %     8.8 %     8.4 %     7.9 %     8.0 %        
Annual Increase in Consumer Price Index:
                                               
Nova Scotia
    3.4 %     1.8 %     2.8 %     2.0 %     1.9 %        
Canada
    2.8 %     1.8 %     2.2 %     2.0 %     2.2 %        
 
(1)   Compound annual rate of growth is computed by distributing the aggregate amount of growth during the period on the basis of a single annual rate of growth compounded annually. These rates are not adjusted for inflation unless otherwise indicated.
 
(2)   Gross Domestic Product (“GDP”) at market prices represents the value added by each of the factors of production plus indirect taxes less subsidies.
 
(3)   In dollars
Sources: Statistics Canada, Catalogue No 13-213, 13-001, 61-206, 31-001, 63-005 and CANSIM Table 080-0002, 304-0015 and 326-0021.

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Recent Developments
          Global economic and financial market conditions have deteriorated over the past number months. The Bank of Canada has stated that although Canada’s economy evolved largely as expected during the first three-quarters of 2008, it is now entering a recession as a result of the weakness in global economic activity. These global economic conditions will likely negatively impact the Nova Scotian economy.
          The Conference Board of Canada’s economic forecast on February 12, 2009 shows Nova Scotia and Canada’s GDP growth at basic prices in 2002 dollars would be -0.3% and -0.5%, respectively, for 2009.
          In response to the weakening of economic activity, the Province introduced an Infrastruture Stimulus Plan on March 11, 2009. That plan is primarily based on increased public capital expenditures that are expected to add $1.4 billion to the Province’s debt. As the stimulus spending will appear as capital expenditures rather than as part of the operating budget, the Province has stated that the Province will not incur a deficit in 2009-10.
          The following table sets forth the most recently available information with respect to certain economic indicators for Nova Scotia and Canada.
RECENT DEVELOPMENTS
                     
        Percentage Change except
        where noted
    Period   Nova Scotia   Canada
 
Retail Trade (1)
  Jan. — Dec 2008/
Jan. — Dec 2007
    4.5 %     3.3 %
 
                   
Housing Starts (all areas) (2)
  Jan. — Sep .2008/
Jan. — Sep. 2007
    -15.6 %     -7.6 %
 
                   
Unemployment Rate (3)
  January 2009     8.8 %     7.2 %
Unemployment Rate
  Jan. — Dec 2008     7.7 %     6.1 %
 
                   
Consumer Price Index
  Jan. — Dec. 2008/
Jan. — Dec. 2007
    3.0 %     2.3 %
 
(1)   Seasonally adjusted.
 
(2)   These figures represent residential housing starts in both urban and rural areas.
 
(3)   These figures reflect the seasonally adjusted rate of unemployment.
Sources: Statistics Canada, Catalogue No. 71-001 PPB and CANSIM Tables 080-0014, 027-0008 and 326-0020.

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Economic Structure
          Nova Scotia’s economy features the general characteristics of developed economies. Nova Scotia’s service sector is disproportionately larger than that of Canada. This represents Nova Scotia’s long-established position as the principal private sector service center for Atlantic Canada and the center for regional public administration and defense.
          The following table shows the relative contribution of each sector to GDP in basic prices (chained 2002 dollars) for Nova Scotia and Canada for the calendar years indicated.
NOVA SCOTIA GROSS DOMESTIC PRODUCT BY INDUSTRY IN BASIC PRICES
(CHAINED 2002 DOLLARS)
                                                                 
                                            Compound        
                                            Annual Rate of     % of GDP  
                                            Growth     in Basic Prices,  
    2003     2004     2005     2006     2007     2003-2007     2007  
    (In millions)             Nova Scotia     Canada  
Primary Sector:
                                                               
Agriculture, Forestry, Fishing, and Hunting
  $ 800.4     $ 740.4     $ 734.9     $ 674.8     $ 679.9       -4.0 %     2.6 %     2.2 %
Mining and Oil, and Gas Extraction
    893.6       795.1       826.2       753.8       799.2       -2.8 %     3.0       4.7  
Utilities
    642.9       615.8       611.6       565.8       600.4       -1.7 %     2.3       2.6  
 
                                                 
 
    2,336.9       2,151.3       2,172.7       1,994.4       2,079.5       -2.9 %     7.9       9.4  
 
                                                 
Secondary Sector:
                                                               
Manufacturing
    2,629.5       2,847.1       2,858.7       2,766.9       2,892.0       2.4 %     10.9       15.2  
Construction
    1,482.6       1,546.6       1,531.5       1,595.6       1,561.5       1.3 %     5.9       6.0  
 
                                                 
 
    4,112.1       4,393.7       4,390.2       4,362.5       4,453.5       2.0 %     16.8       21.2  
 
                                                 
Service Sector:
                                                               
Transportation and Warehousing
  $ 1,053.0     $ 1,037.0     $ 1,017.6     $ 1,026.4     $ 1,043.7       -0.2 %     3.9       4.6  
Wholesale and Retail Trade
    2,764.9       2,782.7       2,806.5       2,877.3       2,965.2       1.8 %     11.2       11.7  
Information and Culture Industries
    896.0       867.2       918.4       935.3       949.2       1.5 %     3.6       3.6  
Finance and Insurance, Real Estate and Leasing, and Management of Companies
    4,902.6       5,027.7       5,151.7       5,349.1       5,506.0       2.9 %     20.8       19.7  
Education Services
    1,421.7       1,449.9       1,513.0       1,561.5       1,577.2       2.6 %     6.0       4.8  
Health Care and Social Assistance
    2,070.7       2,100.9       2,151.5       2,243.1       2,272.6       2.4 %     8.6       6.3  
Arts, Entertainment, and Recreation
    179.7       184.8       186.8       187.5       186.7       1.0 %     0.7       1.0  
Accommodation and Food Services
    642.3       640.6       628.1       630.7       601.6       -1.6 %     2.3       2.2  
Other (1)
    1,885.3       1,950.7       1,970.3       1,981.3       2,044.9       2.1 %     7.7       9.8  
Public Administration
    2,689.5       2688.4       2738.2       2772.5       2787.1       0.9 %     10.5       5.5  
 
                                                 
 
    18,505.7       18,729.9       19,082.1       19,564.7       19,934.2       1.9 %     75.3       69.4  
 
                                                 
Gross Domestic Product at Basic Prices
  $ 24,954.7     $ 18,729.9     $ 19,082.1     $ 19,564.7     $ 19,934.2       1.9 %     100.0 %     100.0 %
 
                                                 
 
(1)   Includes the following industry categories: Professional, Scientific and Technical Services; Administrative and Support, Waste Management and Remediation Services; and, Other Services.
Sources: Statistics Canada, Catalogue No. 15-001-XPB

13


 

Population and Labor Force
          According to estimates by Statistics Canada, at July 1, 2008, the population of Nova Scotia was 938,310 or 2.8% of the Canadian population of 33.3 million. During the period July 2004 to July 2008, the population of Nova Scotia remained unchanged, as compared to growth of 1.1% for Canada. Nova Scotia’s labor force grew at a compounded annual rate of 0.3% compared to 1.5% for Canada for the 2004 to 2008 calendar year period.
          In 2007, the Province’s labor force averaged 487,000 persons, representing 63.7% of the population 15 years of age and over. This is an increase of 0.8 percentage points in the participation rate compared to 2006.
          In 2008, the Province’s labor force averaged 491,000 persons, representing 63.9% of the population 15 years of age and over. This is an increase of 0.2 percentage points in the participation rate compared to 2007.
          Nova Scotia’s unemployment rate increased to 8.8% in January 2009, on a seasonally adjusted basis, versus the January 2008 level of 7.4%. This compares with an increase in rates to 7.2% from 5.8% respectively for Canada for the same period. The unemployment rate for Nova Scotia in January 2009 reflects an increase in the labor force of 1.9%, an increase in the number of individuals employed of 0.4%, combined with a increase in the number of unemployed of 20.4%, compared to the same month in 2008.
          The following table sets forth Nova Scotia’s population and labor force for the 2004 to 2008 calendar years.
POPULATION AND LABOR FORCE
                                                 
                                            Compound Annual Rate
    2004   2005   2006   2007   2008   of Growth
    (In thousands unless otherwise indicated)
Total Population (July 1)
    938       936       935       934       938       0.0 %
Population 15 Years of Age and Over
    757       761       763       764       769       0.4 %
Labor Force
    485       484       480       487       491       0.3 %
Labor Force Employed
    442       443       442       448       453       0.6 %
Participation Rate (%):
                                               
Nova Scotia
    64.1 %     63.6 %     62.9 %     63.7 %     63.9 %        
Canada
    67.5 %     67.2 %     67.2 %     67.6 %     67.8 %        
Unemployment Rate (%):
                                               
Nova Scotia
    8.8 %     8.4 %     7.9 %     8.0 %     7.7 %        
Canada
    7.2 %     6.8 %     6.3 %     6.0 %     6.1 %        
Source: Statistics Canada, Catalogue Number 71F0004-XCB, 90-002-XPB and 91-213-XIB.

14


 

          The following table illustrates the distribution of employment in Nova Scotia by industry for the calendar years 2004 through 2008, and the compound annual rate of growth over the period 2004 to 2008.
EMPLOYMENT BY INDUSTRY
                                                 
                                            Compound
                                            Annual
                                            Rate of
    2004   2005   2006   2007   2008   Growth
    (In thousands)
Agriculture
    5.4       5.8       4.7       5.6       6.4       4.3 %
Forestry, Fishing, Mining, Oil, and Gas
    13.9       15       12.7       12.2       12.7       -2.2 %
Utilities
    2.5       2.4       1.8       1.9       3.1       5.5 %
Construction
    28.2       27.7       27.3       27.2       31.3       2.6 %
Manufacturing
    43.6       40.3       39.1       41.4       39.1       -2.7 %
Wholesale and Retail Trade
    74.7       77.8       78.2       77       79.2       1.5 %
Transportation and Warehousing
    21.4       21       18.7       18.4       18.6       -3.4 %
Finance, Insurance, Real Estate, and Leasing
    22.2       21.8       22.3       23.2       22.3       0.1 %
Professional, Scientific, and Technical Services
    20.3       20.2       18.4       17.5       21.3       1.2 %
Business, Building and Other Support Services
    24.9       24.2       28.8       27.1       25.9       1.0 %
Educational Services
    36       35.3       34.7       36.3       33.9       -1.5 %
Health Care and Social Assistance
    53.6       56       59.1       61.5       60.5       3.1 %
Information, Culture, and Recreation
    16.6       15.8       16.3       19.5       19.8       4.5 %
Accommodation and Food Services
    31.1       31.6       29.8       30.2       29.4       -1.4 %
Other Services
    20.4       20.8       20.7       20.5       19.4       -1.2 %
Public Administration
    27.2       27.4       29.2       28.1       30.3       2.7 %
Total — All Industries
    442.2       443.1       441.8       447.6       453.2       0.6 %
Sources: Statistics Canada, Labour Force Historical Review 2006 CD-ROM No. 71F0004-XCB

15


 

Income and Prices
          Personal income in Nova Scotia increased by 4.6% to $28,917 million in 2007, and average weekly wages in 2007 increased by 2.2% to $673.38 (average weekly wages were $687.68 in 2008).
          The following table reflects the percentage increases in average weekly wages and salaries as well as the Consumer Price Index (“CPI”) for Nova Scotia and Canada for calendar years 2004 through 2008.
CPI AND AVERAGE WEEKLY WAGES AND SALARIES, INDUSTRIAL
AGGREGATE (PERCENT INCREASE OVER PREVIOUS YEAR)
                                 
    Nova Scotia   Canada
    Average Weekly           Average Weekly    
    Wages and Salaries   CPI   Wages and Salaries   CPI
2003
    1.2 %     3.4 %     1.3 %     2.8 %
2004
    2.8 %     1.8 %     2.1 %     1.8 %
2005
    3.4 %     2.8 %     3.2 %     2.2 %
2006
    2.1 %     2.0 %     3.0 %     2.0 %
2007
    2.2 %     1.9 %     3.2 %     2.2 %
2008
    2.1 %     3.0 %     2.8 %     2.3 %
Sources: Statistics Canada, Catalogue Number 72F0023-XCB and CANSIM Tables 281-0026 and 326-0021.

16


 

Capital Expenditures
          Capital expenditures consist of investment in new construction, and purchases of machinery and equipment in Nova Scotia by the private sector and all levels of government.
          The following table sets forth preliminary actual capital expenditures for the 2005 to 2008 calendar years and investment intentions for 2009.
CAPITAL EXPENDITURES1
                                         
    2005     2006     2007     2008(2)     2009(3)  
    (in millions)  
Housing
  $ 1,768.3     $ 1,889.9     $ 2,023.9     $ 2,027.6     $ 1,888.5  
Public Administration, Education, Health, and Social Services
    957.5       1,161.8       1,074.6       1,319.6       1,378.3  
Wholesale and Retail Trade
    420.8       374.8       453.3       428.9       400.6  
Finance, Insurance, Real Estate, and Leasing
    842.2       906.5       900.1       675.2       658.5  
Manufacturing
    421.5       391.9       612.1       416.8       417.6  
Transportation and Warehousing
    283.5       345.9       394.0       356.6       330.8  
Information and Cultural Industries
    199.1       242.7       271.3       222.9       202.6  
Agriculture, Forestry, and Fishing
    123.3       111.4       112.8       98.4       97.4  
Mining and Mining Related
    508.1       380.8       150.1       364.4       697.7  
Other (4)
    480.6       531.7       636.1       680.3       687.5  
 
                             
Total
  $ 6,004.9     $ 6,337.4     $ 6,628.3     $ 6,590.7     $ 6,759.5  
 
                             
 
                                       
Private Sector
  $ 4,995.2     $ 5,094.3     $ 5,382.9     $ 5,138.2     $ 5,280.2  
Public Sector
    1,009.7       1,243.1       1,245.4       1,452.5       1,479.3  
 
                             
Total
  $ 6,004.9     $ 6,337.4     $ 6,628.3     $ 6,590.7     $ 6,759.5  
 
                             
 
                                       
Construction
  $ 3,636.6     $ 3,951.9     $ 3,865.3     $ 4,373.4     $ 4,513.5  
Machinery and Equipment
    2,368.3       2,385.5       2,762.9       2,217.3       2,246.0  
 
                             
Total
  $ 6,004.9     $ 6,337.4     $ 6,628.3     $ 6,590.7     $ 6,759.5  
 
                             
 
(1)   Capital Expenditures are classified under the North American Industrial Classification System (“NAICS”).
 
(2)   Preliminary Actual
 
(3)   Investment Intentions as reported in February 2009.
 
(4)   “Other” includes Utilities; Construction; Professional, Scientific and Technical Services; Management of Companies and Enterprises; Administrative and Support, Waste Management and Remediation Services; Arts, Entertainment, and Recreation; Accommodation and Food Services; and Other Services.
Source: Statistics Canada, Catalogue Number 61-205, February 2009 and CANSIM Tables 026-0005 and 032-0002.

17


 

          The Private and Public Investment in Canada, Intentions 2009 survey published in February 2009 by Statistics Canada showed a 2.6% increase in capital expenditures intentions in Nova Scotia in 2009 over 2008, reflecting expectations of increased capital spending in public administration and mining and mining related industries, and offset by declining spending in housing, transportation and warehousing, and the information and culture industries. Private sector capital expenditure investment intentions for 2009 were expected to account for 78.1% of the total capital expenditures.
          The preliminary actual results for 2008 showed a 0.6% decrease in capital expenditures as compared to 2007, reflecting increased investment in, public administration and mining and mining related industries being more than offset by declines in capital expenditure in manufacturing, wholesale and retail trade, transportation and warehousing, finance, insurance, real estate and leasing, and the information and culture sector.
          Capital expenditures for 2007 showed a 4.6% increase in capital expenditures over 2006, reflecting increased spending in housing, transportation and warehousing, finance, insurance, real estate and leasing, wholesale and retail trade, manufacturing, and information and culture industries. These results were partially offset by declines in mining and mining related industries, and public administration sectors.
          Capital expenditures for 2006 showed a 5.5% increase in capital expenditures over 2005, reflecting increased investment in transportation and warehousing, information and culture industries, public administration, housing, and finance, insurance, real estate and leasing. These were somewhat offset by declines in capital expenditure in mining and mining related industries, wholesale and retail sale, agriculture, forestry and fishing, and manufacturing.

18


 

Goods Producing Industries
          Manufacturing. The manufacturing industry is the largest contributor to the goods producing portion of Nova Scotia’s economy and accounted for 10.9% of real GDP (basic prices in chained 2002 dollars) in 2007. The gross selling value of manufacturers’ sales increased from $9,605 million in 2004 to an estimated total of $10,777 million in 2008 presenting a compound annual rate of growth of 2.9%. This compares with a compound annual rate of growth of 0.9 % for Canada over the same period.
          In 2008, the gross selling value of manufacturers’ sales was 9.1% higher than in 2007. Exports of refined petroleum products, wood pulp, tires, fruits, nuts, chocolate and food preparation were up, while exports of newsprint and other paper products, lumber and fish products were down. The employment level in the manufacturing sector in 2008 decreased by 2,300 persons or a decline of 5.6% compared to 2007.
          Most of the employment in the manufacturing sector occurs outside of the province’s largest urban center (Halifax Regional Municipality) making the sector directly and indirectly a key employer in many of the more rural areas of the province.
          The United States is the primary market for Nova Scotia’s international merchandise export trade. In 2008, $4.5 billion or 78.0% of the value of Nova Scotia’s international merchandise exports went to the United States.
          Almost 30% of manufacturers’ sales for Nova Scotia in 2008 were attributable to two major industry groups: food and plastics and rubber products. The food industry accounted for 17.8% of total shipments in 2008, and the plastics and rubber products accounted for 10.7%. The latter category is in part related to the three plants operated by Michelin North American (Canada) Inc. The pulp and paper industry and sales from a petroleum refinery (for which the specific output valued are not published but are included by Statistics Canada shown in “Other” in the table below) contribute to significant output within the manufacturing industry.
          The following table sets forth the gross selling value of manufacturers’ sales for Nova Scotia by industry group for the calendar years 2004 through 2008.
GROSS SELLING VALUE OF MANUFACTURERS’ SALES
                                         
    2004   2005   2006   2007   2008
    (millions $)
Food
  $ 2,287.1     $ 2,228.0     $ 2,097.7     $ 2,065.0     $ 1,918.5  
 
                                       
Wood Products
    599.3       629.7       605.5       509.2       465.3  
Printing & Related Support Activities
    112.1       108.4       100.5       105.1       103.9  
Chemicals
    144.6       152.8       232.4       272.7       322.4  
Plastics & Rubber Products
    1,348.6       1,368.4       1,116.3       1,177.8       1,152.6  
Non-metallic Mineral Products
    165.1       183.0       193.4       215.2       226.7  
Fabricated Metal Products
    241.0       218.2       229.2       245.7       256.7  
Machinery
    139.1       164.5       163.3       155.3       189.3  
Computer & Electronic Products
    179.5       151.3       306.8       224.0       196.8  
Electrical Equipment, Appliances & Components
    76.5       69.8       46.2       41.1       40.4  
Transportation Equipment
    855.3       864.4       813.2       714.0       825.2  
Furniture & Related Products
    105.6       109.9       96.1       102.4       114.6  
Other
    3,351.0       3,769.5       3,654.4       4,046.2       4,964.5  
 
                                       
All Manufacturing Industries
  $ 9,604.8     $ 10,017.9     $ 9,655.0     $ 9,873.7     $ 10,776.9  
Source: Statistics Canada, CANSIM Table 304-0015.

19


 

          Construction. The construction industry is the second largest goods-producing industry in Nova Scotia. Its contribution to real GDP (basic prices in chained 2002 dollars) was $1,644.9 million in 2007 and accounted for 5.9% of total real GDP. Construction activity accounted for 66.4% of total capital expenditures in 2008, an increase of 8.0% from 2007 versus a 1.6% increase in Canada in 2008 over 2007. Compound annual growth in capital expenditures on construction in Nova Scotia was 4.5% for the 2004 to 2008 period, as compared to 10.7% for Canada.
          Canada Mortgage and Housing Corporation reported that housing starts in all areas of Nova Scotia decreased by 16.2% in 2008, compared to an decrease of 7.6% at the national level over the same period. Capital expenditures on housing construction in Nova Scotia increased 0.2% in 2008, versus a 2.8% increase in Canada for the same period. Construction associated with housing starts comprises only part of the capital expenditures on housing construction; a significant part of these expenditures are for residential renovations. Renovations in Nova Scotia in 2007 totaled $452 million.
          Capital expenditures on non-residential construction increased 27.4% in 2008 in Nova Scotia versus an increase of 11.4% in Canada.
          Employment in the construction sector in 2008 was up by 4,100 persons compared to 2007, the demand for workers in the industry over the last couple of years was above the historical long-term levels. Over the time period of 2004 to 2008, the compound annual rate of growth for employment in the construction industry was 2.6%, well above the rate of 1.3% for all industries in Nova Scotia.
          Fisheries. A large and diverse commercial fish and processing industry exists in Nova Scotia. Nova Scotia harvests over 50 different species of seafood, and exports these products to all major seafood markets. The Federal Government, through detailed stock assessment plans and quotas, manages fisheries resources.
          Nova Scotia’s fish landings had a value of $599.2 million in 2007. Shellfish such as lobster, snow crab and scallops, accounted for 83.1% of the value of landings. Lobster is the predominant species and represented 49.8% of the total landed value. Scallops and shrimp are the next predominant species at 13.6% and 7.4%, respectively.
          Nova Scotia was the largest exporting province for seafood in 2007 at just under $461.6 million. The United States is still Nova Scotia’s main destination for seafood, representing 71.3% of fish exports. Most of the remaining export value of seafood in 2007 was destined for Japan, Belgium, Spain, South Korea, Unitied Kingdom and the Netherlands. The international export value of seafood in 2007 declined by 3.6% compared to levels in 2006.
          The harvesting sector employed 6,300 persons throughout all of Nova Scotia in 2007, a decrease of approximately 900 persons from 2006.
          In terms of real GDP growth, 2007 saw output decrease 1.5% from 2006 levels. Total volume of commercial fish landings (metric tonnes) was down 11.4%. The Canadian dollar has been putting downward pressure on the value of exports to the U.S. market; the total value of exports for fish and seafood was down 3.6% in 2007 relative to 2006.

20


 

          The following table sets forth information with respect to the fishing and fish processing industry in Nova Scotia for the calendar years 2003 through 2007.
FISHING AND FISH PROCESSING INDUSTRY
                                         
    2003   2004   2005(1)   2006(1)   2007(2)
    (in Millions)
Quantity of Fish Landings (pounds)(3)
    816.8       733.0       591.3       626.7       555.0  
Value of Fish Landings (3)
  $ 847.2     $ 743.5     $ 731.7     $ 656.7     $ 599.2  
Market Value of Fish Products Produced (4) (5)
  $ 1,609.6     $ 1,412.7     $ 1,390.2     $ 1,247.7     $ 1,138.5  
Capital Investment (6)
  $ 64.9     $ 57.3     $ 59.3     $ 51.8     $ 52.0  
Value of Exports of Fish and Marine Products
  $ 1,187.9     $ 1,098.3     $ 1,045.7     $ 983.6     $ 954.7  
 
(1)   Revised.
 
(2)   Preliminary.
 
(3)   Does not include Aquaculture.
 
(4)   Estimated by Province of Nova Scotia.
 
(5)   Includes an estimate of market value for imported frozen fish processed net of raw material costs.
 
(6)   Includes fishing, hunting, and trapping.
 
Sources:   Department of Fisheries and Oceans, and Nova Scotia Department of Agriculture and Fisheries.
Statistics Canada, Catalogue Number 61-205 and CANSIM Table 29-0005.
          Participation in, and regulation of, the fisheries was the subject of a 1999 decision of the Supreme Court of Canada. In September and November 1999, the Supreme Court held that under the Treaty of 1760, the Mi’kmaq are entitled “to continue to provide for their own sustenance by taking the products of their hunting, fishing and other gathering activities, and trading for what in 1760 termed ‘necessaries,’” which the Supreme Court interpreted as the ability to obtain a “moderate livelihood.” A moderate livelihood was described by the Supreme Court as including basics such as “food, clothing and housing, supplemented by a few amenities” but does not extend to the open-ended accumulation of wealth. The Supreme Court held that the right is subject to regulation. See “Introduction — Current Issues Concerning Native Persons.” The case was fact-specific in relation to eels, and determinations of what are appropriate hunting, fishing and gathering activities for modern Mi’kmaq will be decided by either a court on a case by case, fact specific basis, or through negotiations of the parties. Interim fishing agreements have been entered into by the Federal Department of Fisheries and Oceans with a majority of the native groups dealing with the issuance of limited licenses for specific fisheries, including lobster fishing zones, training, and acquisition of equipment. Licenses issued pursuant to these agreements are available as a result of the Federal Government purchasing non-native licenses.

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          Mining and Mineral Exploration The value of mineral production (excluding oil and gas) in Nova Scotia decreased 7.1% to $300 million in 2007 from 2006 levels. Gypsum, crushed stone, salt, sand and gravel, and coal are the major minerals being produced. Nova Scotia also produces cement, clay, limestone, dolomite, anhydrite, peat, barite, and silica.
          Real GDP change in the sector, excluding the oil and gas sector, had a decline of 5.3% in 2007 from 2006. The industry, including the oil and gas sector, employed 3,400 persons in 2007, unchanged from 2006.
          Nova Scotia’s 2007 production value of stone decreased 2.2% to $81.2 million from 2006, with production of 10.8 million tonnes.
          Nova Scotia’s gypsum and anhydrite deposits are among the largest workable deposits in Canada. Nova Scotia is the most productive gypsum-mining region in the world. Gypsum outcrops occur throughout the whole of the northern half of the province’s mainland and Cape Breton Island. In 2007, Nova Scotia produced about 84% of Canada’s gypsum. Statistics show the value of gypsum production to be $94.0 million in 2007 with 6.5 million tonnes being produced. For 2007, the value of international exports was $78.1 million, a decrease of 11.0% from 2006. Approximately 83% of the gypsum and anhydrite shipped from Nova Scotia was destined for the United States in 2007.
          There are currently two surface coal mines operating in Nova Scotia. Production information is currently unavailable due to confidentiality requirements of Statistics Canada.
          In 2003, the Province announced that it had acquired the mining lease for the Sydney coalfields from the Cape Breton Development Corporation, a crown corporation of the Federal Government. This prompted the Provincial government to call for proposals for the Donkin coal resource in December 2004. Xstrata plc won the bid to develop the Donkin mine. At present, the project is managed by the Donkin Coal Alliance that is a joint venture between Xstrata Coal Donkin Limited (a subsidiary of Xstrata plc) (75%) and Erdene Gold Inc. (25%). The capital budget required to bring the mine to longwall production is estimated to be $313 million and includes a 10% contingency for supply costs, while labour costs have had a 15% contingency applied. A preliminary assessment study prepared for the Donkin Coal Alliance, which was made public in November 2007, projects a mine life of 30-plus years, over which time approximately 109 million tonnes of run-of-mine coal is expected to be produced. The mine is expected to have the potential to extract up to three million tonnes of coal per year, employing about 275 miners. Xstrata filed for a provincial environmental assessment of the Donkin Underground Exploration Project in October 2008. The development of this mine has no public funding requests tied to the proposal.
          Agriculture Real GDP in the agricultural sector decreased by 0.8% in 2007, despite a 0.3% increase in farm cash receipts. Most of this change in real GDP occurred in field crop production, where total crop receipts decreased 5.9% in 2007. The number of people employed in the agricultural sector stood at 5,600 persons in 2007, an increase of approximately 900 from 2006. The major components of agricultural production in Nova Scotia include dairy products, poultry, eggs and fruit crop production. Farm cash receipts for livestock production were up 2.5% in 2007.
          Forestry In 2007, the value of manufacturing shipments for wood products was $509.2 million, a decrease of 15.9% from 2006. The logging sector employed approximately 2,500 persons in 2007, an increase of approximately 300 from 2006. In 2007, the total provincial harvest of round wood was 5,248,716 cubic meters, an increase of 0.8% from 2006. Of this amount, 492,882 cubic meters or 9.4% was exported. Finished lumber production was 1,224,800 metric tonnes, a decline of 12.6% from 2006. Export sales of lumber, mostly to the United States, were down 22.3% in 2007 over 2006. In 2007, export sales for paper products were up 108.0%, while wood pulp export shipments were down 1.4%.

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Exports
          The total value of exports of goods and services from Nova Scotia in 2007, under Statistics Canada’s Provincial Economic Accounts data system, stood at $14,488 million, giving an annual compound growth rate of 1.2% over the 2003 to 2007 period. The value of exports of goods and services represented 43.9% of the total value of GDP in 2007.
          Of the $14,488 million in total exports, 51.3% or $7,436 million were shipped to other countries, leaving 48.7% or $7,052 million as exports to other provinces within Canada. Exports of goods accounted for 72.8% of total exports while exports of services accounted for 27.2%. Most of the goods are exported to other countries (60.6%), while services are mostly exported to other provinces (73.5%.)
          Over the 2003 to 2007 period, the total value of exports of goods had an annual compound growth rate of 0.3% compared to 3.8% for the total value of export of services.
          Statistics Canada reports in their Provincial Economic Accounts data system that the total value of international exports of goods in 2007 was $6,392 million, experiencing an annual compound rate growth of 0.2% since 2003. These figures can be contrasted with Nova Scotia’s international merchandise exports of goods based on customs clearing data that amounted to $5,451.3 million in 2007. The Provincial Economic Accounts data system adjusts the customs data for other costs such as transportation margins and duties. During the period 2003 to 2007 the Canadian dollar appreciated from $1.4015 CAD/USD in 2003 to $1.0748 CAD/USD in 2007.
          The following table sets forth categories of Selected Trade indicators for the calendar years 2003 through 2007.
SELECTED TRADE INDICATORS
                                         
    2003     2004     2005     2006     2007  
    (In millions $)  
 
                                       
Exports of Goods and Services
                                       
International
    7,295       7,749       7,755       7,267       7,436  
Interprovincial
    6,523       6,705       7,000       7,003       7,052  
Total Exports of Goods and Services
    13,818       14,454       14,755       14,270       14,488  
 
                                       
Imports of Goods and Services
                                       
International
    8,840       8,932       9,402       9,630       9,634  
Interprovincial
    9,489       10,130       10,378       10,983       11,388  
Total Imports of Goods and Services
    18,329       19,062       19,780       20,613       21,022  
 
                                       
Trade Balance
    (4,511 )     (4,608 )     (5,025 )     (6,343 )     (6,534 )
 
                             

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          The following table sets forth Nova Scotia’s top ten international merchandise exports by industry for the calendar years 2004 through 2008, and the compound annual growth rate over the 2004 to 2008 period.
INTERNATIONAL MERCHANDISE EXPORTS BY INDUSTRY
                                                 
                                            Compound
                                            Annual Rate
    2004   2005   2006   2007   2008   of Growth
    (in millions)
Oil & Gas Extraction
    1,067.8       1,348.6       974.9       1,159.9       1,445.8       7.9 %
Tire Manufacturing
    735.8       735.2       758.9       819.4       857.9       3.9 %
Paper Mills
    495.3       568.2       246.2       512.0       619.0       5.7 %
Seafood Product Preparation & Packaging
    595.6       557.3       513.8       503.5       433.0       -7.7 %
Fishing
    509.3       496.2       478.7       461.6       422.9       -4.5 %
Petroleum Refineries
    149.1       69.8       130.0       100.5       195.1       7.0 %
Pulp Mills
    219.5       172.9       170.9       168.5       163.9       -7.0 %
Frozen Food Manufacturing
    101.4       96.2       114.5       111.9       108.2       1.6 %
Sawmills & Wood Preservation
    250.7       227.7       204.3       158.8       98.0       -20.9 %
Navigational, Measuring, Medical & Control Instruments
    67.1       62.9       63.7       69.2       77.1       3.5 %
Sub-total
    3,123.8       4,335.0       3,655.9       4,065.2       4,421.0       9.1 %
Other
    2,686.6       1,467.9       1,537.7       1,386.1       1,389.1       -15.2 %
Grand total
    5,810.4       5,802.9       5,193.7       5,451.3       5,810.1       0.0 %
Source: Statistics Canada and Industry Canada.

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Service Sector
          Overview. The metropolitan area is the largest financial and commercial service center in Atlantic Canada. The area is also one of Canada’s major medical and scientific communities, and the location of several federally sponsored scientific research institutions, including the Bedford Institute of Oceanography. The Halifax region is also home to several universities as it is a major education center for Atlantic Canada.
          The Halifax region accounted for 46.2% of the total employment in Nova Scotia in 2008 producing an unemployment rate of 5.2% for 2008 compared to the 7.7% unemployment rate for the Province as a whole, and 6.1% unemployment rate for Canada.
          The following table sets forth the percentage contribution to the GDP for the service sector by component for the calendar years 2003 through 2007.
SERVICE INDUSTRIES AS A PERCENTAGE OF TOTAL SERVICE PRODUCING INDUSTRIES
                                         
    2003     2004     2005     2006     2007  
 
                                       
Finance, Insurance, Real Estate, Renting and Leasing, and Management of Companies
    26.5 %     27.0 %     27.2 %     27.4 %     27.7 %
Wholesale and Retail Trade
    14.9       14.8       14.7       14.8       14.9  
Public Administration
    14.5       14.4       14.3       14.0       13.9  
Health Care and Social Assistance
    11.2       11.2       11.2       11.3       11.2  
Educational Services
    7.7       7.8       8.0       7.9       7.7  
Transportation and Warehousing (1)
    5.7       5.4       5.4       5.5       5.5  
Information and Culture Industries
    4.8       4.7       4.7       4.8       4.7  
Accommodation and Food Services
    3.5       3.4       3.3       3.4       3.4  
Arts, Entertainment, and Recreation
    1.0       1.0       1.0       0.9       0.9  
Other (2)
    10.2       10.4       10.2       10.1       10.2  
 
                             
Total (3)
    100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
 
                             
 
(1)   Includes Pipeline Transportation — See “Offshore Exploration and Development”.
 
(2)   Includes the following industrial categories: Professional, Scientific and Technical Services; Administrative and Support, Waste Management and Remediation; and Other Services.
 
(3)   Numbers may not add up due to rounding.
 
     Source: Statistics Canada, Catalogue Number 15-203.
          Trade. The value of retail sales in 2008 in Nova Scotia was $12,154.3 million, a 4.5% increase over the 2007 level. The compound annual rate of growth in retail sales was 4.2% in Nova Scotia and 5.2% in Canada during the 2004 to 2008 period. Employment in the retail sector stood at 65,300 persons in 2008, an increase of approximately 1,600 persons compared to 2007.
          The value of wholesale trade was $7,136.1 million in 2008, up 5.7% compared to 2007. The sector had an employment level of 13,800 in 2008, an increase of approximately 500 from 2007. In 2007, the wholesale sector had a real GDP rate of change of 2.7%. As noted in the above table, the trade sector accounts for almost 15% of the total value of GDP for the service producing sector.
          Transportation and Warehousing. Transportation and warehousing have been important factors in the economy of Nova Scotia throughout its history. Halifax harbor and the Strait of Canso are deep-water, ice-free harbors. The Port of Halifax is capable of handling vessels up to 150,000 metric tonnes, and the Strait of Canso can accommodate the world’s largest super-tankers.

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          The sector had a real GDP growth rate (chained 2002 dollars) of 1.7% in 2007. Over the time period of 2003 to 2007, the sector has experienced an annual compound decline of 0.2%. In 2007, the sector employed about 18,400 persons, a decrease of 300 from 2006.
          Port facilities at Halifax include 35 deep-water berths that are complemented by rail, air, and motor freight services. With two container terminals, each capable of berthing two container ships simultaneously, Halifax is Canada’s third largest container port and the only port on the east coast of North America capable of handling fully laden Post-Panamax vessels. The total volume of cargo handled by the Port of Halifax in 2008 was 10.3 million metric tonnes. In 2008, containerized cargo tonnage amounted to 3.2 million metric tonnes. Bulk cargo, chiefly consisting of petroleum products and gypsum, totaled 6.6 million metric tonnes. Ro/Ro (roll-on/roll-off) and break-bulk accounted for the rest of the cargo tonnage shipped through the Port of Halifax. This port serves as a trans-shipment point for automobile distribution throughout Atlantic Canada via ship and rail. The Port of Halifax also serves more container lines, with more direct calls to Europe, the Mediterranean, Middle East, Asia, South America, Central America, and the Caribbean than any other Canadian port The Port of Halifax marked a record year for visitation by cruise vessels with 125 vessels in 2008 and 228,133 passengers.
          Tourism. Approximately 2.1 million tourists visited Nova Scotia during 2007, a similar number of visitors as in 2006. The majority of visitors (86%) came from other parts of Canada. Atlantic Canada is the largest Canadian market with 54% of total visitation, while 21% came from Ontario and 7% from Western Canada. Western Canada and Ontario reported the strongest growth in visitation this year. About 10% of visitors to the Province travelled from the United States, with another 3% arriving from overseas markets. The downward trend in the number of Americans travelling to Nova Scotia continued in 2007 with 18,000 fewer visitors compared to 2006 likely due to the higher Canadian dollar and higher gas prices. However, this was offset by an additional 46,300 visitors from other parts of Canada. In overseas visitation, the UK market rose 9% or 2,000 visitors in 2007, while the German market continued to decline, down 54% or 6,900 visitors. Reports indicate that air fare from Germany increased quite significantly in 2007, which likely contributed to the decline in this market.
          From January to November 2008, there were 1,960,500 visitors to the province, which is a 3% decrease (or 174,500 fewer visitors) compared to the same period last year. This was due in large part to a 6% decline in road visits. In contrast, year-to-date visits by air experienced a 2% increase.
Energy
          There is one petroleum refinery operating in Nova Scotia. Crude oil for the refinery is obtained from foreign sources.
          The majority of electricity generated in Nova Scotia is from coal and oil-fired facilities. Overall total electricity production in Nova Scotia for 2008 was 12,164.4 gigawatt hours, a 2.8% decrease in production over 2007. Total utility generation was 11,916.1 gigawatt hours, a 2.9% decrease over 2007. Total hydro generation was 1,090.1 gigawatt hours, a 4.7% increase over 2007. As of May 2008, there was 60 megawatts of installed power from wind turbines. Nova Scotia Power Inc. had also entered into purchase agreements for an additional 240 megawatts of power to be generated in the province. The Province of Nova Scotia’s regulations require that nearly 20 per cent of the Province’s electricity supply come from renewable sources (wind, solar, tidal and biomass technology) by 2013.
Offshore Exploration and Development
          Since the beginning of exploration activity in the late 1960’s, substantial gas reserves and modest oil reserves have been discovered, including the six fields that are part of the Sable Offshore Energy Project (“SOEP”), and also the Deep Panuke Project. As of September 15, 2008, there were 864,730 hectares of land in the offshore region under active exploration licenses, including 87,495 hectares under significant discovery licenses and 33,858 hectares under production license. SOEP expenditures in Canada through December 31, 2007 on development and operations have been $5,401.3 million, 36.5% of this amount was spent in Nova Scotia.

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          SOEP is a natural gas project located on the Scotia Shelf that commenced production on December 31, 1999. SOEP’s natural gas production averaged 448.6 mmcf/d in 2008, and condensate production was 62,198 cubic metres per day in 2008. The Sable Offshore Energy Project is divided into two ‘tiers’ of offshore development. The first tier was completed in December 1999 and involved the development of the Thebaud, North Triumph, and Venture fields, as well as the construction of three offshore platforms, an onshore gas plant and an onshore fractionation plant. Gas production commenced on December 31, 1999. Alma, the first Tier II platform came onstream in late 2003 while production from South Venture, the second field began late in 2004.
          A compression unit was installed on the SOEP project’s central processing platform in 2006, and was operational in mid-November. In addition to the producing gas field, the SOEP project includes a gas plant at Goldboro and a fractionation plant at Point Tupper. The Maritimes & Northeast Pipeline provides transportation of SOEP gas to markets in Nova Scotia, New Brunswick, and the northeastern United States. This pipeline originates at the “tailgate” of the gas plant in Goldboro, Nova Scotia, continues in a westerly direction and crosses the New Brunswick-Nova Scotia border near Tidnish, Nova Scotia.
SOEP NATURAL GAS PRODUCTION
                                         
    2004   2005   2006   2007   2008
 
                                       
Total Production (mmcf/d)
    417.6       408.2       367.1       426.0       448.6  
          ExxonMobil Canada Properties Ltd., Shell Canada Ltd., Imperial Oil Reserves, Pengrowth Energy Trust and Mosbacher Operating Ltd. are interest holders in SOEP. In 1999, the project partners signed a royalty agreement for this project with the Province. The royalty income from offshore gas and natural gas liquids for the fiscal year 2007-08 was $399.7 million.
          In October 2007, EnCana announced that its Board of Directors had approved the development of the company’s Deep Panuke natural gas project; approximately 175 kilometres off the coast of Nova Scotia. The natural gas will be processed on the production platform and exported to shore by a dedicated 176 kilometer pipeline to the SOEP gas processing facility in Goldboro, and then the natural gas will feed into the Maritime and Northeast Pipeline. EnCana has stated that its expected projected development costs are approximately $700 million for the Deep Panuke project. Production is expected to start in 2010, and is anticipated to continue for a mean production life of 13 years. The Deep Panuke field is expected to deliver between 200 million and 300 million cubic feet of natural gas per day.
          In October 2007, the Canada Nova Scotia Offshore Petroleum Board (“CNSOPB”) revised its estimates of Nova Scotia’s offshore reserves to a range of between 12 and 39 trillion cubic feet of natural gas. The total estimate of oil and natural gas liquids potential reserves in the Nova Scotia offshore area is between 1.3 and 4.5 billion barrels.
          At present, one liquefied natural gas (LNG) petrochemical plant is being proposed for Nova Scotia. Keltic Petrochemicals has filed an environmental review for an approximately $4.5 billion LNG/petrochemical plant in Goldboro. In March 2006, Maple LNG Limited, a corporation owned by 4Gas North America and Suntera Canada Ltd., purchased the LNG portion of the project. Keltic has an option to buy back the feedstock from the LNG plant for its petrochemical plant. In March 2007, the Province of Nova Scotia granted approval to Maple LNG for the LNG importation and re-gasification facility. Keltic Petrochemicals also received approval for the petrochemical plant. In June 2008, the Nova Scotia Utility and Review Board approved the permit for construction of the LNG terminal in Goldboro. The project still needs shareholder approval, which will require further work on front-end engineering to determine more accurate development costs and scheduling.
Exploration Rights
          Exploration rights are awarded for a nine-year period to the bidder making the highest work commitment. If this amount is not spent within an initial five-year period (extendable by one year more upon payment of $250,000), 25% of the deficiency is paid to the Provincial government. The land is forfeited to the Crown if an

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exploration well is not drilled within this initial period. The total exploration spending commitment in the 16 active exploration license areas offshore Nova Scotia is $805.8 million. The activity is split between the shallow waters near the SOEP and the much deeper waters off the edge of the Scotian Shelf.
          The total value of forfeitures to the Province of exploration licenses was $61 million covering twelve licenses for the fiscal year 2004-2005, $43.2 million covering five licenses for the fiscal year 2005-2006, $4.2 million covering two licenses for the fiscal year 2006-2007, and $107.1 million for thirteen licenses for the fiscal year 2007-2008.
          On April 19, 2007, the Chair of the CNSOPB announced that a second type of exploration license would be introduced that would cover a two or three year period and have a lower cost of entry. This measure is intended to stimulate future exploration activity. On September 18, 2007, the CNSOPB announced a new policy for extension of exploration licenses. Companies can apply to the CNSOPB to extend Period 1 of the exploration license annually from six years up to the legislated maximum of nine years. The interest owner will have to pay an extension fee of $2.50 per hectare in each year that Period 1 is extended.
          On July 10, 2008, the Canada Nova Scotia Offshore Petroleum Board announced that the Board had accepted two “Work Expenditure Bids” representing the amount of money the bidder intends to spend exploring the land parcels during the initial five-year period of a nine-year Exploration Licence. The bids totaled $216.8 million for the two parcels in the Nova Scotia offshore.

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GOVERNMENT FINANCE
Overview
          Under the Canadian Constitution, the Province is granted certain exclusive powers, including the power to impose direct taxation within the province to raise revenue for Provincial purposes and the power to borrow money on the sole credit of the Province. Certain responsibilities assigned to the Province are, in turn, delegated to municipal governments and other local bodies within the province, such as school boards and local service commissions, under varying degrees of Provincial control.
          Municipal governments raise their own revenues from a number of sources, the most important of which is real property taxes, and also receive financial assistance from the Province. Municipal borrowing powers are strictly limited; operating deficits in any given year must be recaptured through taxation or other current revenues the following year. Municipal borrowings for capital purposes are subject to the approval of the Minister of Service Nova Scotia and Municipal Relations (“SNSMR”) of the Province and must be made through the Nova Scotia Municipal Finance Corporation (See “Certain Crown Corporations and Agencies — Nova Scotia Municipal Finance Corporation”).
          The receipt of public revenues, the disbursement of public funds, the control of expenditures, and the keeping and auditing of the Public Accounts of the Province are governed by various Provincial statutes. All receipts and disbursements of public money of the Province’s departments and public service units flow through the Consolidated Fund. Such receipts and disbursements consist of revenue, expenditures, and other transactions. Any net cash requirement of the Consolidated Fund is provided for by the Province’s traditional sources of financing, including borrowings in the public and private financial markets and internal sources.
          Anticipated revenue, program expenses, capital expenditures, and debt servicing costs included in the budgetary estimates of the Province are submitted for approval to the House of Assembly for each fiscal year. Authority for expenditure expires at the end of each fiscal year. Funds for expenditure may also be provided by special legislation and by order of the Lieutenant Governor in Council pursuant to the authority of the Provincial Finance Act. Loans and investments, including those to or on behalf of corporations and agencies owned or controlled by the Province, are generally made pursuant to the authority and limitations of various Provincial statutes and are not included in the annual budgetary estimates submitted to the House of Assembly for approval.
          The accounts and financial operations of the Province and the financial statements of certain crown corporations and agencies are subject to audit by the Auditor General, an official appointed by the Lieutenant Governor in Council under the Auditor General Act. Since the fiscal year ended March 31, 1999, the Auditor General has audited the consolidated financial statements of the Province.
          Figures shown for the fiscal year 2007-2008 are audited actual figures. On April 29, 2008 the Minister of Finance submitted the Budget for the fiscal year 2008-2009, which is referred to herein as “Estimate 2009”. These estimates were revised as at December 19, 2008 and such revised numbers are referred to as “Forecast 2009”.
Specific Accounting Policies
          Financial statements of the Province are prepared in accordance with Canadian generally accepted accounting principles for the public sector, which for purposes of the Province’s financial statements are represented by accounting recommendations of the Public Sector Accounting Board (“PSAB”) of the Canadian Institute of Chartered Accountants (“CICA”), supplemented where appropriate by other CICA and International Federation of Accountants accounting standards or pronouncements.
The Government Reporting Entity
          The government reporting entity is comprised of the Consolidated Fund, other Governmental Units, Government Business Enterprises, and Government Partnership Arrangements. Governmental Units and Government Business Enterprises represent the entities that are controlled by the Province. Government Partnership

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Arrangements represent entities for which decision making and significant risks and benefits are shared with other parties outside of the Government Reporting Entity.
Principles of Consolidation
          This section describes the the accounting treatment for each type of entity included in the consolidated financial statements of the Province. A Governmental Unit is a government organization that is not a Government Business Enterprise. Governmental Units include government departments, public service votes, funds, agencies, service organizations, boards, government not-for-profit organizations, and government business-type organizations. The accounts of Government Units are consolidated on a line-by-line basis after adjusting for differences in significant accounting policies with the exception of capitalization thresholds and depreciation methods and rates of accounting for tangible capital assets for which no accounting policy adjustments are performed. Significant inter-organization accounts and transactions are eliminated.
          A Government Business Enterprise is a self-sustaining organization that has the financial and operating authority to sell goods and services to individuals and non-government organizations as its principal activity and source of revenue. Government Business Enterprises have been accounted for on the modified equity basis that does not require any accounting policy adjustments. Net equity of Government Business Enterprises is included in government consolidated financial statements in the Consolidated Statement of Financial Position, while any net income or net loss is shown as a separate line item in the Consolidated Statement of Operations and Accumulated Deficits. The largest Government Business Enterprises, in terms of revenues, are the Nova Scotia Liquor Corporation and the Nova Scotia Gaming Corporation.
          A Government Partnership is a contractual arrangement between the government and a party or parties outside the reporting entity. The partners have clearly defined common goals, make a financial investment in the partnership, share control of decision-making, and share, on an equitable basis, the significant risks and benefits associated with the operations of the government partnership. Where significant, government’s interest in partnerships is accounted for using proportionate consolidation.
          A complete overview of the organizations within the Government Reporting Entity is available within the Province’s Public Accounts, Volumes I and II for the fiscal year 2007-2008.
Revenues
          Revenues are recorded on an accrual basis. The main components of revenue include interest, various taxes, and legislated levies. Revenues from Personal and Corporate Income Taxes and Harmonized Sales Taxes, are accrued in the year earned based on estimates using statistical models. These revenues are recorded at the net amount estimated, after considering adjustments for tax credits and administrative costs related to the collection and processing performed by the Federal Government.
Expenses
          Expenses are recorded on an accrual basis. Grants are recognized in the period during which the grant is authorized and any eligibility criteria are met. Provisions are made for probable losses on certain loans, investments, loan guarantees, accounts receivable, advances, forgivable loans, and for contingent liabilities when it is likely that a liability exists and the amount can be reasonably determined. These provisions are updated as estimates are revised, at least annually.

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Measurement Uncertainty
          Uncertainty in the determination of the amount at which an item is recorded in the Province’s financial statements is known as measurement uncertainty. Uncertainty exists whenever estimates are used because it is reasonably possible that there could be material difference between the recognized amount and another reasonably possible amount.
          Measurement uncertainty exists in the Province’s financial statements in the accruals for such items as pension, retirement and other obligations, environmental remediation obligations, and federal and provincial source revenues. The nature of the uncertainty in the accruals for pension, retirement, and other obligations arise because actual results may differ significantly from the Province’s various assumptions about plan members and economic conditions in the marketplace. Uncertainty exists for environmental remediation obligations because the actual extent of remediation activities required may differ significantly based on the actual extent of site contamination and the chosen remediation process. Uncertainty related to Sales and Income Taxes, petroleum royalties, Canada Health Transfer and Canada Social Transfer arises because of the possible differences between estimated and actual economic growth assumptions used in statistical models by the Province to accrue these revenues.
          Additional accounting policies are set forth in the Notes to the Public Accounts filed as Exhibit (2) to the Province’s Form 18-K for the fiscal year ended March 31, 2008.
Accounting Changes
          There were no significant accounting policy changes made during the fiscal year 2007-2008.
          Accounting policy changes and corrections were made for fiscal year 2006-2007 that increased / decreased the Provincial Surplus, Net Direct Debt and Accumulated Deficits as follows:
Tangible Capital Assets — Gross Costs
In accordance with PSAB, a policy change was implemented to record tangible capital assets at gross cost. This policy change was recorded on a retroactive basis. This change increased the Provincial surplus by $18.6 million in fiscal year 2006-2007 and increased the Provincial surplus by $10.6 million in fiscal year 2005-2006.
District Health Authorities — Supplementary Pensions
Supplementary pension arrangements for certain employees of the District Health Authorities made in 2006-2007, with restatement for 2005-2006, which were recorded as accounts payable have been restated to pension, retirement and other obligations and accounted for using pension accounting. This change was recorded on a retroactive basis and had a prior period impact in 2005-2006 of a $56,000 decrease in expenses.
          Accounting policy changes and corrections were made for fiscal year 2005-2006. These changes decreased the Provincial surplus by $0.7 million in fiscal year 2005-2006 and increased the Provincial surplus by $4.8 million in fiscal year 2004-2005. These changes were:
School Boards — Non-teaching Retirement Allowances
The obligation for retirement allowances for non-teaching staff of the Halifax Regional and Chignecto-central Regional School Boards was valued during the fiscal year 2005-2006 and recorded on a retroactive basis. This change decreased the Provincial surplus by $0.2 million in fiscal year 2005-2006.
Inventory

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Inventory held by Provincial departments has been recorded during the fiscal year 2005-2006 and applied on a retroactive basis. This change decreased the Provincial surplus by $0.7 million in fiscal year 2005-2006 and increased the Provincial surplus by $4.5 million in fiscal year 2004-2005.
Nova Scotia Farm Loan Board
An adjustment to the reserve account was made as a result of actuarial work, which impacted periods prior to fiscal year 2004-2005. This change had no effect on the Provincial surplus.
School Boards — Pensions
Certain school boards valued non-teaching pension obligations during the fiscal year 2005-2006. This change increased the Provincial surplus by $0.2 million in fiscal year 2005-2006 and increased the Provincial surplus by $0.3 million in fiscal year 2004-2005.
          Accounting policy changes and corrections were made for fiscal year 2004-2005. These changes increased the Provincial surplus by $4.2 million in fiscal year 2004-2005 and decreased the Provincial surplus by $4.5 million in fiscal year 2003-2004. The most significant changes were:
Long-Term Disability Plan
The Public Sector Accounting Board (“PSAB”) recognizes two acceptable methods of valuing plan assets, at fair market value, or at smoothed market value. In fiscal year 2004-2005, the Province retroactively changed its policy to employ the smoothing method for the assets of the Long-term Disability Plan. As a result, the difference between market related value and fair market value of assets is amortized to income over a five year period.
Prepaid Expenses
Prepaid expenses of the Consolidated Fund were reclassified from accounts receivable to prepaid expenses.
Nova Scotia Legal Aid Commission — Health and insurance benefits
The Commission offers health and insurance benefits to certain employees upon retirement. The obligation for this plan was valued during the fiscal year 2004-2005 and recorded on a retroactive basis.

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The following table sets forth a summary of the accounting changes outlined above.
ACCOUNTING POLICY CHANGES IMPLEMENTATION SCHEDULE
                                         
    2004   2005   2006   2007   2008
 
                                       
Policy Changes 2005
                                       
Long-term Disability Plan
    X       X       X       X       X  
Prepaid Expenses
    X       X       X       X       X  
Nova Scotia Legal Aid — Health & Insurance Benefits
    X       X       X       X       X  
 
                                       
Policy Changes 2006
                                       
School Boards — Non-teaching Retirement Allowance
                    X       X       X  
Inventory
                    X       X       X  
Nova Scotia Farm Loan Board
                    X       X       X  
School Boards — Pensions
                    X       X       X  
 
                                       
Policy Changes 2007
                                       
Tangible Capital Assets — gross costs
                            X       X  
District Health Authorities — Supplementary Pensions
                            X       X  
          The financial information with respect to the Province set forth herein has been derived from several sources, including the consolidated financial statements of the Province. Unless otherwise indicated, amounts shown for the fiscal years ended March 31, 2004, 2005, and 2006 have been restated as described above. Unless otherwise indicated, amounts referred to as “forecasted for the year ended March 31, 2009” have been taken from the fiscal year 2008-09 Forecast Update released on December 19, 2008.
          The Forecast, however, is not prepared on the same basis as the historical financial information. Revenues and expenses in the forecast reflect only those of the Consolidated Fund. The Provincial surplus includes results of the Consolidated Fund, consolidation and accounting adjustments for Governmental Units, and net income for Government Business Enterprises.

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Summary of Budget Transactions and Borrowing Requirements
SUMMARY OF OPERATIONS AND NET FUNDING REQUIREMENTS
OF THE CONSOLIDATED ENTITY
(8)
                                         
    Restated     Restated     Restated              
    2004(1)     2005(2)     2006(3)     2007     2008  
    (in millions)  
Revenues
  $ 6,056.4     $ 6,998.3     $ 7,527.5     $ 7,952.4     $ 8,908.4  
Program Expenses
    5,287.5       6,110.7       6,616.4       7,151.9       7,879.9  
Debt Servicing Costs
    1,072.9       1,067.0       1,017.7       958.7       953.7  
 
                             
Total Expenses
    6,360.4       7,177.7       7,634.1       8,110.6       8,833.6  
 
                             
Surplus/(Deficit) from Governmental Units
    (304.0 )     (179.4 )     (106.6 )     (158.2 )     74.8  
Net Income from Government Business Enterprises
    333.4       349.5       345.4       340.6       344.2  
 
                             
Provincial Surplus before Unusual Item
    29.4       170.1       238.8       182.4       418.9  
Unusual Item (4)
    8.7       0.0       0.0       0.0       0.0  
 
                             
Provincial Surplus(8)
    38.1       170.1       238.8       182.4       418.9  
 
                             
Net Funding Requirements
                                       
Deficit/(Surplus)
    (38.1 )     (170.1 )     (238.8 )     (182.4 )     (418.9 )
Non-Cash Items (5)
    (279.1 )     (759.1 )     (593.0 )     (239.0 )     (395.4 )
 
                             
Operating Requirements
    (317.2 )     (929.2 )     (831.8 )     (421.4 )     (814.3 )
Loan advances and Investing, net of repayments
    29.3       101.9       57.6       26.9       31.6  
Acquisition of Tangible Capital Assets
    330.5       343.1       399.9       548.2       437.1  
Sinking Fund Installments and Serial Retirements
    58.8       75.1       54.8       63.3       55.9  
Net Refinancing Transactions(6)
    557.1       1,004.6       1,121.4       775.8       709.3  
 
                             
Net Funding Requirement
    658.5       595.5       801.9       992.8       419.7  
Financing of Net Funding Retirement
                                       
Change in Cash and Short-term Investments
    (272.9 )     133.8       13.4       (481.2 )     263.1  
Debt Issued
    931.4       461.7       788.5       1,474.0       156.6  
 
                             
Total
  $ 658.5     $ 595.5     $ 801.9     $ 992.8     $ 419.7  
 
                             
 
(1)   Restated to reflect Accounting Changes during 2004-2005. See “Government Finance — Accounting Changes.
 
(2)   Restated to reflect Accounting Changes during 2005-2006. See “Government Finance — Accounting Changes.
 
(3)   Restated to reflect Accounting Changes during 2006-2007. See “Government Finance — Accounting Changes.
 
(4)   Unusual items in fiscal year 2003-2004 was gains on disposal of the net assets and shares of Nova Scotia Resources Limited.
 
(5)   Includes amortization of tangible capital assets, net proceeds on disposal of tangible capital assets, foreign exchange amortization, net income from Government Business Enterprises, changes in receivables, payables, and other non-cash items, and sinking fund earnings, which are retained in the Sinking Funds and Public Debt Management Fund, and are not available for general purposes, profit distribution from Government Business Enterprises and foreign currency swaps and adjustments. Also includes the draw downs from sinking funds and the Public Debt Management Fund.
 
(6)   Net Refinancing Transactions consist of proceeds from Sinking Funds and Repayment of Debentures and Other Long-term obligations.
 
(7)   For 2005, 2006, 2007 and 2008, there are recoveries, fees and other charges that were reclassified. For 2004, these amounts are netted against expenses, for 2005, 2006, 2007 and 2008 they are included as revenue. Due to this change the 2004 numbers are not directly comparable to the 2005 to 2008 numbers.
 
(8)   As of December 19, 2008, the Province is forecasting a surplus of $212.9 million for fiscal year 2008-2009.

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          For the fiscal year 2007-2008, the Province recorded a surplus of $418.9 million. Revenues totaled $8,908.4 million, expenses were $8,833.6 million, the surplus from Government Units was $74.8 million, and Net Income from Government Business Enterprises was $344.2 million.
          For the fiscal year 2006-2007, the Province recorded a surplus of $182.4 million. Revenues totaled $7,952.4 million; expenses were $8,110.6 million resulting in a deficit from Government Units of $158.2 million. Net Income from Government Business Enterprises was $340.6 million.
          For the fiscal year 2005-2006, the Province initially recorded a surplus of $228.1 million. As a result of certain accounting policy changes and corrections made in fiscal year 2006-2007, the fiscal year 2005-2006 surplus was restated to $238.8 million, an increase of $10.7 million.
          For the fiscal year 2004-2005, the Province initially recorded a surplus of $165.3 million. As a result of certain accounting policy changes and corrections made in fiscal year 2005-2006, the 2004-2005 surplus was restated to $170.1 million, an increase of $4.8 million.
          For fiscal year 2003-2004, the Province initially recorded a surplus of $42.6 million. As a result of certain accounting policy changes and corrections made in fiscal year 2004-2005, the 2003-2004 surplus was restated to $38.1 million, a decrease of $4.5 million.

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Revenue
          The following table sets forth the revenue, by source, of the Consolidated Fund, as described in “Government Finance — Specific Accounting Policies” above, for fiscal years 2004, 2005, 2006, 2007 and 2008, and the Budget Estimate for the fiscal year ending March 31, 2009, each adopting the accounting policies, other than consolidation of government entities, described in “Government Finance — Specific Accounting Policies” and “Government Finance — Accounting Changes” above.
REVENUE BY SOURCE FOR CONSOLIDATED FUND (1)(2)
                                                 
    Restated     Restated     Restated                     Budget  
    2004     2005     2006(3)     2007(3)     2008(3)     2009(3)  
 
                                               
Provincial Sources:
                                               
Income Taxes
                                               
Personal Income Taxes
  $ 1,350.1     $ 1,462.3     $ 1,568.4     $ 1,679.0     $ 1,778.4     $ 1,828.7  
Corporate Income Taxes
    252.3       329.1       361.5       392.6       389.5       415.9  
Sales Taxes
    975.2       1,031.1       1,057.8       1,090.8       1,074.9       1,151.0  
Tobacco Taxes
    161.7       178.3       163.6       145.1       145.6       138.1  
Motive Fuel Taxes
    249.9       249.2       248.3       245.6       249.2       246.9  
Interest Revenues
    69.3       70.5       81.1       81.9       87.9       81.8  
Registry of Motor Vehicles
    77.5       86.7       88.2       92.0       99.1       98.1  
Offshore Royalties
    24.1       28.2       123.9       269.1       399.7       513.8  
Offshore Licenses Forteitures
    1.2       61.0       43.2       4.2       107.1        
Other Provincial Sources
    235.6       246.9       299.5       277.2       304.0       284.3  
TCA Cost Shared Revenue
                            4.5       2.7  
Prior Years Adjustment
    124.7       (63.3 )     16.4       13.0       85.8        
Fees & Other Charges
    67.7       60.6       60.9       64.7       56.4       60.8  
Ordinary Recoveries
    217.6       191.4       254.1       247.3       261.9       254.6  
 
                                   
Sinking Fund Earnings
    183.6       143.2       124.4       121.6       112.8       114.4  
 
                                   
Total Provincial Sources
    3,990.5       4,075.1       4,491.4       4,724.0       5,156.7       5,191.2  
 
                                   
 
                                               
Federal Sources:
                                               
Equalization
    1,114.5       1,321.8       1,343.5       1,385.5       1,464.5       1,464.9  
CHST
    686.9                                
Canada Health Transfer
          484.5       581.0       610.5       639.0       664.2  
Canada Social Transfer
          244.9       255.0       264.3       280.4       296.9  
Crown Share
                            234.4        
Wait Times Reduction Fund
          18.3       18.2       34.7       34.4        
Health Reform Fund
    29.6       44.0                          
Offshore Offset
          34.0       4.0                    
Offshore Oil & Gas Payments
                57.1       57.4       68.2       105.9  
Other Federal Sources
    2.3       2.3       2.3       2.3       5.7       57.1  
C48 Infrastrurture Funds
                      2.5       43.1       38.8  
C52 Trust Funds
                            2.7       24.5  
TCA Cost Shared Revenue
                      22.5       31.2       62.4  
Prior Years’ Adjustments
    (2.6) )     25.1       5.0       6.7       12.3        
Ordinary Recoveries
    177.4       162.4       162.1       183.1       206.7       201.8  
 
                                   
Total Federal Sources
    2,008.1       2,337.3       2,428.2       2,569.5       3,022.6       2,916.5  
 
                                   
Total Revenue
  $ 5,998.6     $ 6,412.5     $ 6,8919.6     $ 7,293.5     $ 8,179.2     $ 8,107.6  
 
                                   

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(1)   Revenue by source is presented for the Province’s Consolidated Fund. This information does not include the revenues from other Governmental Units, Government Business Enterprises, and Government Partnership Arrangements. The revenues and expenses of these entities are included within statements prepared for the Consolidated Entity. (See “Government Finance — Summary of Budget Transactions and Borrowing Requirements”.)
 
(2)   The net revenues from the Nova Scotia Gaming Corporation and the Nova Scotia Liquor Corporation have been reclassified from Ordinary Revenue to Net Income from Government Business Enterprises. However, net income from GBE’s is not included in this table. The Casino Win Tax continues to be reported in the Consolidated Fund under ordinary revenue, other provincial sources.
 
(3)   For 2005, 2006, 2007 and 2008, there are recoveries, fees and other charges that were reclassified. For 2004, these amounts are netted against expenses, for 2005, 2006, 2007 and 2008 they are included as revenue. Due to this change the 2004 numbers are not directly comparable to the 2005 to 2008 numbers. See “Government Finance — Summary of Budget Transactions and Borrowing Requirements.
Provincial Sources
          Provincial own-source revenues of the Consolidated Fund for fiscal year 2007-2008 totaled $5,156.7 million (representing 63.0% of the Province’s total revenues) and are budgeted to be $5,191.2 million for fiscal year 2008-2009, representing 64.0% of the Province’s revenues. The largest of the Province’s own-source revenues, Personal Income Taxes, totaled $1,778.4 million in fiscal year 2007-2008 and are budgeted to increase to $1,828.7 million for 2008-2009. The second largest own-source revenue, Harmonized Sales Tax (“HST”), totaled $1,074.9 million for 2007-2008 and is budgeted to increase to $1,151.0 million for fiscal year 2008-2009.
          The Federal Government collects a number of taxes on behalf of the Province, including personal and corporate income taxes, Large Corporations Tax (capital tax), and the HST.
          In fiscal year 1999-2000, the Province moved to a tax on income, or TONI, system for personal income tax. Prior to this change, provincial personal income tax was calculated as a percentage of Basic Federal Tax. The provincial tax on income is calculated on federally defined taxable income, and consists of four income tax brackets and a high income surtax. The rate for the first bracket, on taxable income up to $29,590, stands at 8.79%. The rates on the second (taxable income between $29,591 and $59,180) and third (taxable income between $59,181 and $93,000) brackets are 14.95% and 16.67% respectively. The fourth bracket for income above $93,000 was added in 2004 with a rate of 17.5%. There is a surtax of 10% of provincial tax in excess of $10,000.
          As a part of the 2006-2007 Budget, the Province announced personal income tax relief in the form of an increase in the Basic Personal Amount, which is a credit, of $250 per year each of the next four years beginning as of January 1, 2007. By the 2010 tax year the Basic Personal Amount will be $8,231, an increase of 13.8% from 2006 levels. Nova Scotia will also increase non-refundable tax credits including amounts for spouse, dependents, pension income, disability, caregiver, age and infirm dependents age 18 or over. In 2011 and beyond, the Basic Personal Amount and non-refundable credits will be indexed, starting at 2%. The Province also introduced a graduate tax credit for post-secondary education students, a Child Care Benefit Tax Credit, and increased the value of the Healthy Living Tax Credit. These personal income tax measures were expected to reduce tax paid by Nova Scotia taxpayers by $112.9 million between 2006-2007 and 2009-2010.
          The general corporate income tax rate is 16% of the corporate taxable income earned in Nova Scotia. A small business rate of 5% applies to the first $400,000 of active business income for Canadian Controlled Private Corporations. As of July 1, 2008 the Large Corporations Tax (LCT) has been reduced to 0.20%. This tax applies to taxable paid up capital of corporations with capital in excess of $10 million; the tax is phased in for corporations with paid up capital between $5 million and $10 million. The Large Corporations Tax will continue to be phased out until 2012 when it will be completely eliminated. The capital tax rate for financial institutions is 4%.
          On April 1, 1997, a harmonized sales tax (“HST”) was implemented in Nova Scotia, replacing the Health Services Tax (11%) and incorporating the Federal Goods and Services (“GST”) of 7%, which has subsequently been reduced to 5%. The HST is a combined Federal and Provincial tax and is collected by the Canada Revenue Agency. Revenues are shared with the Province, with the Provincial component of the HST at 8% out of the 13% collected.
          The HST is a value-added tax levied on most goods and services purchased in Nova Scotia. Certain items such as basic groceries and exports are zero-rated, while others such as residential rents are exempt. The Province provides consumer rebates on the Provincial component of the HST for books, new home construction, tourism,

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volunteer fire departments, and heritage properties. Rebates are also available to municipalities, universities, schools, and hospitals.
Federal Sources
          Federal sources are made up of three major transfers, Equalization ($1,464.5 million in 2007-08), the Canada Health Transfer (“CHT”, $639.0 million in 2007-08) and the Canada Social Transfer (“CST”, $280.4 million in 2007-08). Equalization, CHT and CST are budgeted to be $1,464.9, $664.2, and $296.9 million respectively, for the fiscal year 2008-2009.
          Equalization is an unconditional Federal Government transfer that is paid out of Federal Government resources. First introduced in Canada in 1957, Equalization was subsequently entrenched in the Constitution Act, 1982. Until a new framework agreement in 2004-2005, Equalization was calculated by comparing the fiscal capacity of a province, based on 33 tax bases, to a representative standard. This standard was made up of five provinces: Quebec, Ontario, Saskatchewan, Manitoba and British Columbia. If a province’s fiscal capacity was below the per capita capacity of the standard, that province would receive Equalization entitlements. If the province’s fiscal capacity was above the per capita capacity of the standard, it would not receive Equalization entitlements
          The Equalization program has traditionally been renewed every five years, with the exception of the 1992 renewal that was for two years only. The 2004 Renewal was never implemented because a Transitional Approach was agreed upon at a First Ministers’ Meeting in September 2004 to allow the Federal Government an opportunity to develop a new framework for the program. The Transitional Approach included increasing the total entitlement to Equalization receiving provinces by $1,148 million to a total of $10 billion in the 2004-2005-entitlement year. In addition, the total entitlement to the Equalization receiving provinces was established at $10.9 billion for 2005-2006, and would increase by 3.5% per annum in each subsequent year. Equalization payments were based on 50 percent of a Province’s three-year average of entitlements and 50 percent of a Province’s three-year average of fiscal capacity. Equalization payments for 2005-06 and 2006-07 were set out in Federal Government legislation.
          The Offshore Offset Agreement (Offshore Accord) between the Federal Government and the Province of Nova Scotia was signed in February 2005. Essentially, the agreement was to protect Nova Scotia’s offshore natural resource revenues from clawbacks under the Equalization program by providing an offset payment for the difference between Equalization payments with Nova Scotia’s offshore natural resources included and Equalization payments with these resources excluded. This arrangement had an estimated value of $1.1 billion at current expected production levels. On June 30, 2005, Nova Scotia received an $830 million advance cash payment from the Federal Government. The Province accounts for the annual value of the offset payment on an accrual basis until the $830 million is fully accounted for. The Province has recognized revenues under the Offshore Accord of $57.1 million in 2005-2006, $57.4 million in 2006-2007, $68.2 million in 2007-2008, and will recognize $105.9 million in 2008-2009.
          As a part of Federal Budget 2006, the Federal Government committed to resolving the issue of fiscal imbalance including a principled-based, formula driven Equalization program. The Federal Budget documents indicated that the resolution to this issue would be guided by three reports including a Federal budget discussion paper on fiscal imbalance, the Council of the Federation Advisory Panel on Fiscal Imbalance and the Report of the Expert Panel on Equalization. The Federal Budget 2007 tabled on March 19, 2007 adopted the approach recommended by the Expert Panel on Equalization to resolve the fiscal imbalance. The new formula compares the fiscal capacity of a province to the average fiscal capacity of all provinces (a so-called “ten province” standard) using five tax bases and is calculated based on a three-year weighted moving average. The new formula was intended to make payments under the Equalization program more predictable. A province that is below the national average fiscal capacity receives an Equalization payment while a province above the national average fiscal capacity does not. In addition, a fiscal capacity “cap” was introduced to ensure that no Equalization-receiving province would have a fiscal capacity greater than the lowest fiscal capacity of the non-Equalization-receiving provinces. In 2008-2009 the seven provinces that receive Equalization entitlements are Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Manitoba and Saskatchewan. Nova Scotia has the second highest fiscal capacity of the four provinces of Atlantic Canada. Under the Expert Panel approach, Nova Scotia’s entitlement in 2007-2008 was $1,464.5 million, and is $1,464.9 million in 2008-2009.

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          Under the implementation of the Expert Panel on Equalization, Nova Scotia and Newfoundland & Labrador were also provided with an option to use the 2004 Renewal formula, which included the benefits of the Offshore Accord Agreements. The two provinces were permitted to elect to opt into the Expert Panel approach in any fiscal year. However, once the Expert Panel approach was selected, the 2004 Renewal formula would no longer be an option. Following several months of discussions, on October 10, 2007, the Province and the Federal Government agreed upon a “clarification” of the understanding that Nova Scotia is to be the principal beneficiary of its offshore natural resources. The clarification enables the Province to opt into the Expert Panel approach commencing in 2008-09 and provides a cumulative “best-of” guarantee to ensure that the Province will in the future be treated as favorably as under the formula in place when the Offshore Accord was signed in 2005 (the Transitional Approach) over the life of the Offshore Accord. If the cumulative total of Equalization payments under the Expert Panel approach is less than the cumulative total of Equalization payments the Province would have received under the Transitional Approach formula, the Federal Government will make a payment representing the difference to the Province.
          As part of the October 10, 2007 clarification, the Province and the Federal Government have also agreed to allow a joint independent panel to determine the value of the Crown Share Adjustment Payments due to the Province. This payment arose under Canada’s National Energy Program (“NEP”), enacted by the Government of Canada in 1980. That energy policy reserved to Canada a 25 per cent share interest with respect to oil and gas resource projects, referred to as the “Federal Crown Share”. In 1982, the Province agreed to set aside ownership claims regarding offshore resources in exchange for financial compensation. Nova Scotia, having entered into the 1982 “Canada-Nova Scotia Offshore Agreement” with Canada, would receive financial compensation in a 6.25 per cent and 12.5 per cent share of Canada’s interest in oil and gas field projects, respectively. This was referred to as Nova Scotia’s “Crown Share”. With the dismantling of the NEP in 1985 and subsequent repeal of Nova Scotia’s “Crown Share” interests, the “Canada—Nova Scotia Offshore Petroleum Resources Accord”, signed by Nova Scotia and the Federal Government in 1986, introduced the Crown Share Adjustment Payments (“CSAP”). This was to ensure that, “Nova Scotia receive financial benefits equivalent to those it would have achieved had it exercised its Crown Share options”. With respect to CSAP, Part VIII of the 1988 Federal Government legislation implementing the 1986 Accord provided that Canada would pay to Nova Scotia an amount equal to at least 75 per cent of the “deemed profit” in respect of a project.
          On July 13, 2008, the Federal Government accepted the recommendation of the independent panel. The Federal Government will pay the Province of Nova Scotia $234.4 million for past payments up to March 31, 2008. There will be future payments under the Crown Share Adjustment Payment for SOEP, Deep Panuke and any other offshore development. The independent panel estimates the value of payments for future years for SOEP and Deep Panuke to be approximately $633 million. Of the initial funds, the Province has contributed a total of about $70 million to three separate trust funds expensed in 2007-2008. The remaining $164.4 million was posted as a surplus in 2007-2008. These payments will not reduce Nova Scotia’s Equalization payments, including the application of the fiscal capacity cap, in any particular year, now or in the future.
          The Federal Government in November 2008 announced that the annual expenditure growth in the Equalization program would be limited to the change in the three-year moving average of nominal gross domestic product. Furthermore, the fiscal capacity cap will be set at the average post-Equalization fiscal capacity of the Equalization-receiving provinces. Transition payments will be provided for 2009-2010 to ensure that a province that receives Equalization in that year does not see a decline in its payments. As a result, the Equalization payment to Nova Scotia in 2009-2010 has been established at $1,645 million. The Federal Government must enact legislation to facilitate these changes.
          The Canada Health Transfer (“CHT”) and the Canada Social Transfer (“CST”), previously combined as the Canada Health and Social Transfer (“CHST”) prior to 2004-2005, are the Federal Government’s contribution to the Province in respect of its health care, post-secondary education, early childhood development and social service programs. The amount of Federal assistance does not bear a direct relationship to actual program costs.
          On September 16, 2004, the Provincial and Territorial governments reached an agreement with the Federal Government for additional Federal assistance with respect to provincial and territorial health care programs. Under

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this agreement, the Federal Government will provide an additional $41.3 billion by 2013-2014. The national pool for CHT was set at $19.0 billion for fiscal year 2005-06 with an annual escalator mechanism of 6.0% from 2006-2007 through to 2013-14. In the 2007 Federal Budget, the Federal Government announced an intention to move to a straight per capita funding mechanism when CHT legislation expires in 2013-14. Currently, the allocation of funding across provinces is based partially on a per capita calculation and partially on a complex tax points’ formula.
          The 2007 Federal Budget provided an increase in funding to the CST program of $1.0 billion in 2007-2008 and legislated annual 3.0% increases in funding starting in 2009-2010. The amount of Federal assistance under the CST is not determined in relation to actual program cost; starting in fiscal year 2007-2008 it is allocated on an equal per capita cash basis.
          The Province of Nova Scotia has also benefitted from trusts established by the Federal Government to transfer a portion of the annual Federal Budget surplus to provinces for specific purposes. In 2006, the Federal Government announced that it would set up five trust funds to address immediate provincial pressures in the areas of post-secondary education, infrastructure, public transit, affordable housing, northern housing, and off-reserve Aboriginal housing. A total of $3.3 billion was transferred to the provinces and territories. Nova Scotia received $85.4 million over three fiscal years, commencing in 2006-07 and ending in 2008-09. Nova Scotia recorded $2.4 million of this revenue in 2006-2007, $43.1 million in 2007-2008 and will defer the recognition of the remainder until departmental spending plans are approved and eligible expenses incurred.
          In the 2007 Federal Budget three additional trusts were established for HPV Immunization ($300 million), Patient Wait Times Guarantee ($612 million), and an ecoTrust for Clean Air and Climate Change ($1.5 billion). Nova Scotia will receive $75.1 million from these trusts over the period of three fiscal years: 2007-08 to 2009-10. The revenue will be deferred until departmental spending plans are approved and eligible expenses incurred.
          The Federal Government provides to provinces a stabilization formula under the Federal-Provincial Fiscal Arrangements Act. This legislation provides for Federal grants and interest-free loans to a province if revenue from the province’s own-sources plus equalization falls below 95% of the previous year’s level, excluding variations of natural resource revenue. The Federal-Provincial Fiscal Arrangements Act also provides a limited guarantee arrangement to compensate provinces for certain losses incurred during the calendar year in which a national personal income tax change results in provincial income tax reductions.
          The Federal Government periodically refines and adjusts prior years’ estimates of Equalization, CHST, CHT, CST, HST and income tax payments. Prior years’ adjustments from both Federal and Provincial sources in 2003-2004 were a positive $142.9 million; in 2004-2005 a negative $38.2 million; a positive $21.4 million in 2005-2006; a positive $19.7 million in 2006-2007; and a positive $98.1 million in 2007-2008.

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Program Expenditures / Expenses
          The Provincial Finance Act requires the tabling of balanced budgets. If a deficit is incurred, the Minister of Finance must file a report with the House of Assembly. Any deficit that is incurred in one fiscal year must be recovered by the end of the following fiscal year; other than that caused by a natural or other unanticipated disaster, a sale or restructuring of a government-controlled entity, or debt servicing costs in excess of the budgeted amount.
          The Province introduced a Debt Reduction Plan in 2003, with related legislation in 2004 that added specific provisions for ongoing debt reduction. The goal of the plan was to reduce the Net Direct Debt starting in fiscal year 2007-2008. The 2005 Debt Reduction Plan built on the 2003 Plan and incorporates the new circumstances created by the Offshore Offset payment of $830 million. Specifically:
    the Offshore Offset cash payment was used to retire cash debt when it was received in 2005;
 
    the various debt retirement and management funds were combined into a Public Debt Management Fund, which will be maintained for the purpose of managing the public debt;
 
    the Province is required to produce surpluses at least equal to the amount recognized in accordance with GAAP as revenue earned from the $830 million Offshore Offset payment in each of the next eight years, 2005-2006 to 2011-2012 inclusive; and,
 
    the Province is required to place extraordinary revenue into the Public Debt Management Fund.
          The Federal Government has paid the Province of Nova Scotia $234.4 million for past Crown Share Adjustment Payments up to March 31, 2008. The Province has posted the Crown Share Adjustment Payments as a surplus as follows: 1) the Province contributed a total of about $70 million to three separate trust funds (projects for the offshore, protected lands and university infrastructure) that were expensed in fiscal year 2007-2008, and the remaining $164.4 million was posted as a surplus in 2007-2008, and 2) the future payments under the Crown Share Adjustment Payment for SOEP, Deep Panuke and any other offshore development will be posted as a surplus. The independent panel estimates the value of payments for future years for SOEP and Deep Panuke to be approximately $633 million.
          The following table sets forth the expenses by department, interest on public debt, restructuring costs, and pension valuation adjustment of the Consolidated Fund for the fiscal years 2004, 2005, 2006, 2007 and 2008 and the Budget Estimate for the fiscal year ending March 31, 2009. All columns in the table below have been restated for all accounting policy changes.

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EXPENSES BY DEPARTMENT FOR CONSOLIDATED FUND (1)
                                                 
    Fiscal Year Ending March 31  
    Restated     Restated     Restated                     Budget  
    2004(2)     2005(3)     2006(4)     2007     2008     2009(5)  
    (in millions)  
Agriculture
  $ 57.2     $ 62.4     $ 57.5     $ 54.7     $ 76.1     $ 59.6  
Community Services
    760.0       775.4       792.7       818.0       870.3       912.6  
Economic Development
                      71.7       99.7       91.6  
Education
    1,024.5       1,053.4       1,111.0       1,187.0       1,230.0       1,261.7  
Assistance to Universities
    221.8       235.2       232.0       268.7       422.6       230.5  
Energy
    6.5       8.4       21.7       17.0       44.3       21.8  
Environment
                                  44.6  
Environment & Labor
    37.1       39.2       39.9       40.9       72.0        
Finance
    14.3       13.8       30.1       20.1       28.0       29.9  
Fisheries & Aquaculture
                      6.2       6.9       7.5  
Health
    2,265.4       2,465.9       2,720.3       2,898.4       3,013.9       3,205.9  
Health Protection & Promotion
                34.7       50.3       68.2       87.5  
Justice
    187.1       193.0       206.7       215.5       235.0       262.2  
Labor & Workforce Development
                                  62.4  
Natural Resources
    59.7       58.4       66.7       69.1       87.5       84.6  
Public Service
    222.4       170.7       185.1       117.1       132.8       156.4  
Seniors
                                  2.1  
Service NS & Municipal Relations
    124.5       135.5       170.4       194.7       237.0       254.5  
Tourism & Culture
    46.0       59.2       51.7       54.7       57.4       56.7  
Transportation & Infrastructure Renewal
    250.8       267.1       277.4       297.4       366.3       350.9  
Restructuring Costs
    12.6       64.9       90.7       116.0       56.7       177.7  
Gain on disposal of assets
          (2.8 )     (0.4 )     (2.0 )     (4.2 )      
 
                                   
Total Department Expenses
    5,289.9       5,599.7       6,088.2       6,495.4       7,100.6       7,360.9  
 
                                   
Pension Valuation Adjustment
    (12.3 )     6.2       30.3       83.1       107.5       67.6  
Debt Servicing Costs
    1,039.7       1,033.7       987.9       929.8       924.9       904.5  
 
                                   
Total Expenses
  $ 6,317.3     $ 6,639.6     $ 7,106.4     $ 7,508.4     $ 8,133.0     $ 8,333.0  
 
                                   
 
(1)   Expenses by department are presented for the Consolidated Fund. The cost of tangible capital assets are capitalized and amortized to Expenses over the useful life of the assets. This information does not include the expenses from other Governmental Units, Government Business Enterprises, or Government Partnership Arrangements. The revenue and expenses of the entities are included within statements prepared for the Consolidated Entity. See “Government Finance — Summary of Budget Transactions and Borrowing Requirements.”
 
(2)   Restated to reflect changes in accounting policies during fiscal year 2004-2005. See “Government Finance —Accounting Changes.”
 
(3)   Restated to reflect changes in accounting policies during fiscal year 2005-2006. See “Government Finance —Accounting Changes.”
 
(4)   Restated to reflect changes in accounting policies during fiscal year 2006-2007. See “Government Finance —Accounting Changes.”
 
(5)   Forecast Expenses for the fiscal year 2008-2009 are from the Budget, April 29, 2008.
          Departmental expenses, consisting of program expenses and the amortization of tangible capital assets, were $7,100.6 million for fiscal year 2007-2008 and are budgeted to be $7,360.9 million for fiscal year 2008-2009. Departmental expenses at the December 19, 2008 Forecast Update were projected to have declined to $7,349.3 million.
Health, Education, and Social Services

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          Health (including Health Protection & Promotion) and education (including Assistance to Universities) are the two largest areas of expense from the Consolidated Fund. These amounts totaled $3,082.1 million and $1,652.6 million, respectively, for the fiscal year ended March 31, 2008, and are estimated to be $3,293.4 million and $1,492.2 million, respectively, for the fiscal year 2008-2009.
          In the field of health care, the Province administers a universal and comprehensive medical services and hospital care plan, a dental care program for residents less than 10 years of age, and provides pharmaceutical services for residents 65 years of age and over and Nova Scotians with no other health coverage. In the field of education, the Province makes grants to school boards and community colleges, and assists universities through operating grants.
          Community Services include the provision of direct assistance to persons with disabilities and other disadvantaged individuals and families who require long-term assistance, residential care for persons with disabilities, short-term social assistance, and the provision of direct service to the public. Community Services expenses from the Consolidated Fund totaled $870.3 million for the fiscal year ending March 31, 2008, and are estimated to be $912.6 million for the fiscal year 2008-2009.
Resource and Industrial Development
          The Province is engaged in a wide range of resource and industrial development activities, including direct assistance grants, development and maintenance of natural resources, and consulting services to industry (Agriculture, Economic Development, Fisheries & Aquaculture, and Natural Resources). Expenses from the Consolidated Fund in these areas totaled $270.2 million for the fiscal year ending March 31, 2008, and are estimated to be $243.3 million in fiscal year 2008-2009. The Province also provides loans directly and through agencies to assist the primary, manufacturing, and services industries.
Public Service
          The Province provides a number of essential services, statutory or other, which are necessary for the efficient and/or effective operation of government. There are also programs and activities that provide a benefit to the whole of government but cannot be specifically identified with any other function. Public Service expenses from the Consolidated Fund are estimated to increase from $132.8 million in the fiscal year ending March 31, 2008 to $156.4 million in fiscal year 2008-2009 primarily due to the decision to centralize the human resource function to the Public Service Commission from individual departments.
Justice
          The Province is engaged in activities for the provision of protection of a legal nature to persons and property; public services of a general nature, which lead to a higher degree of personal safety; and the protection of the environment. Expenses from the Consolidated Fund for Justice were $235.0 million in the fiscal year ending March 31, 2008 and are estimated to be $262.2 million in fiscal year 2008-2009. The continued increase in contributions to the costs of municipal policing formed a large part of this increase in expense requirements.
Transportation and Infrastructure Renewal
          The Province is engaged in a wide range of activities to facilitate the effective and efficient movement of persons and property and general communications between people with the associated dispersal of knowledge. Transportation and Infrastructure Renewal expenses from the Consolidated Fund are estimated to decrease from $366.3 million in the fiscal year ending March 31, 2008 to $350.9 million in fiscal year 2008-2009.
Service Nova Scotia & Municipal Relations
          The Province supports municipalities through provision of advice and assistance, and administration of a variety of grant programs. Expenses for the year ending March 31, 2008 were $237.0 million and are estimated to increase to $254.5 million in fiscal year 2008-2009 primarily due to increased grants to municipalities for public transit and infrastructure, and the introduction of a new program to provide assistance to low income households for heating oil costs.

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Loans and Investments
          Under the authority of various Provincial statutes, the Province provides loans to, and makes investments in, its own corporations and agencies, and other entities. The loans and investments relate to programs for the promotion of resource and industrial development, the provision of low-cost and senior-citizen housing and the provision of funding for various Crown agencies and municipalities. Loans are repayable, and assets of Government-owned or other entities support investments.
          The following table sets forth the balances of loans and investments of the Province for the Consolidated Entity, net of allowances for un-collectable amounts adopting the accounting policies described in “Government Finance — Specific Accounting Policies” above.
LOANS AND INVESTMENTS FOR CONSOLIDATED ENTITY
                         
    As at March 31, 2008  
    (in millions)  
    Gross     Provisions     Net  
Loans of the Consolidated Fund
                       
Nova Scotia Farm Loan Board
  $ 187.2     $ 17.8     $ 169.4  
Fisheries Development Fund
    89.2       0.2       89.0  
Nova Scotia Housing Development Fund
    82.6       24.2       58.4  
Industrial Development Fund
    107.0       76.5       30.4  
Venture Corporations Act
    0.8       0.8       0.0  
Loans to Municipalities
    0.3       0.0       0.3  
Halifax Dartmouth Bridge Commission
    0.0       0.0       0.0  
Miscellaneous
    0.7       0.0       0.7  
Market Development Initiative Fund
    5.6       0.0       5.6  
 
                 
 
    473.3       119.5       353.8  
 
                 
 
                       
Investments of the Consolidated Fund
    9.5       0.1       9.4  
 
                 
Total Loans and Investments of the Consolidated Fund
    482.8       119.6       363.2  
 
                 
 
                       
Loans and Investments to Governmental Units
                       
Nova Scotia Business Incorporated
    156.8       48.9       107.9  
Nova Scotia Government Fund
    0.0       0.0       0.0  
Nova Scotia Innovation Corporation
    17.0       0.0       17.0  
Nova Scotia Municipal Finance Corporation
    690.2       0.0       690.2  
Other Governmental Units
    4.9       0.0       4.9  
 
                 
 
    868.9       48.9       820.0  
 
                 
 
                       
Total Loan and Investments
  $ 1,351.7     $ 168.5     $ 1,183.2  
 
                 
          The Government announced in February 2009 that it had increased by $175 million the available funding for the Industrial Expansion Fund (in the table shown as the Industrial Development Fund). That fund is designed to support the expansion of Nova Scotia businesses, invest in new technology and to improve productivity and competitiveness.

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Agriculture and Rural Credit Act
          The Nova Scotia Farm Loan Board (“Farm Loan Board”), a Provincial agency, provides loans to individuals, partnerships, and corporations engaged in the farming industry. Loans are provided for the acquisition of real estate or the improvement of existing facilities, and generally are secured by agreements of sale between the borrower and the Farm Loan Board. The Farm Loan Board establishes the interest rate on loans issued. This rate, which must be approved by the Minister of Agriculture and Fisheries, is based on the average quarterly commercial loan rates for the relevant term obtained from three or more financial institutions, adjusted by business risk and policy factors, with a minimum rate of interest equal to the all-in Province of Nova Scotia cost of borrowing plus 50 basis points.
Fisheries and Coastal Resources Act
          The Fisheries Loan Board, a Provincial agency, provides loans for the construction or purchase of vessels, machinery, and other fishing equipment. Loans are made to individuals, partnerships, and corporations and are secured by first marine mortgages. Fisheries loans bear interest at prevailing market rates repayable on a seasonal repayment schedule.
Industrial Development Act
          The Province provides financial assistance to establish, assist, develop, or expand industries in Nova Scotia. Assistance can be in the form of loans, guarantees, and other financial information.
Nova Scotia Housing Act
          The Housing Act enables the Nova Scotia Department of Community Services to provide subsidized mortgage loans for home ownership, and low-interest loans for home repair or rehabilitation to low-to-moderate income households in Nova Scotia. The Nova Scotia Housing Development Corporation and the Department of Community Services administer the capital housing programs, some of which are cost-shared with Canada Mortgage and Housing Corporation and municipalities. The Housing Act also enables the Nova Scotia Housing Development Corporation to provide loan guarantees for housing projects, construct lease-purchase housing and public housing, and to develop and service land. There are no current initiatives to develop new land or construct new lease-purchase housing or public housing, but the Nova Scotia Housing Development Corporation continues to administer existing housing and land.
Municipal Loan and Building Fund Act
          The Province, through the Nova Scotia Municipal Finance Corporation, provides loans to municipalities for approved capital purposes, which can be roads, sidewalks, public works fleets, recreation facilities, water and sewer systems, and municipal buildings. Loans are secured by municipal debentures.
Nova Scotia Business Incorporated Act
          The Nova Scotia Business Incorporated Act created Nova Scotia Business Incorporated (“NSBI”), a body corporate whose purpose is to make arms-length decisions respecting the provision of financial assistance within Nova Scotia for economic development. At present, the Province funds NSBI’s activities. The first Board of Directors of NSBI was appointed by the Province in 2000. The Board of NSBI is electing subsequent directors. At present, the Board of Directors consists of both those originally appointed by the Province and new members elected by the Board of NSBI. The latter are subject to the approval of the Province as sole shareholder.
Venture Corporations Act
          The Province has provided a source of equity capital to registered venture corporations to encourage the development of small business in Nova Scotia. Venture corporations in turn provide assistance in the development of small enterprises by providing equity capital, business and managerial expertise. Outstanding assistance is currently managed under this Act, but no new funding is being provided under this program.

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Revenue Act
     The Province may provide unsecured loans to establish, maintain, expend, construct, or equip hospitals or health care facilities in Nova Scotia.
Provincial Finance Act
     The Governor-in-Council may authorize the Minister of Finance to lend money to a Government Business Enterprise or a Governmental Unit.

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PROVINCIAL DEBT
Funded Debt
          The following table sets forth the funded debt of the Province for the Consolidated Fund as described in “Government Finance — Specific Accounting Policies” above, outstanding at March 31 in each of the five fiscal years ended March 31, 2004 through to March 31, 2008, each as audited under the Province’s accounting policies in effect at the time. Figures have not been restated for accounting changes, and as a result may not be directly comparable.
FUNDED DEBT FOR THE CONSOLIDATED FUND(4)
                                         
    2004     2005     2006     2007     2008  
Provincial Funded Debenture Debt:
                                       
Payable in Canadian Dollars
                                       
Canadian Pension Plan Fund(1)
  $ 1,079.4     $ 1,079.4     $ 1,079.4     $ 1,079.4     $ 1,079.4  
Other
    9,727.6       8,734.7       8,304.9       9,022.4       9,574.0  
Payable in U.S. Dollars (2)
    2,356.8       2,142.7       1,580.3       1,215.2       0.0  
 
                             
 
    13,163.8       11,956.8       10,964.6       11,317.0       10,653.4  
 
                             
 
                                       
Other Long-term Indebtedness (3)
    453.4       504.8       439.8       401.3       379.3  
 
                             
Total Provincial Funded Debt
  $ 13,617.2     $ 12,461.6     $ 11,404.4     $ 11,718.3     $ 11,032.7  
 
                             
Less: Sinking Funds and Public Debt Management
                                       
Funds (2) (5)
    2,919.8       2,599.4       2,094.8       1,906.8       2,011.9  
 
                             
Net Funded Debt (6)
  $ 10,697.4     $ 9,862.2     $ 9,309.6     $ 9,811.5     $ 9,020.9  
 
                             
 
                                       
Per Capita ($) (7)
  $ 11,422.7     $ 10,514.1     $ 9,946.2     $ 10,492.5     $ 9,657.3  
As a Percentage of:
                                       
Personal Income (7)
    43.8 %     38.8 %     35.0 %     35.5 %     31.2 %
Gross Domestic Product at Market Prices (7)
    37.1 %     33.0 %     29.8 %     30.9 %     27.3 %
 
(1)   Debentures held by the Canada Pension Plan Fund are payable 20 to 30 years after their respective dates of issue, are not negotiable, are not transferable or assignable, but are redeemable in whole or in part before maturity at the option of the Minister of Finance of Canada, on six months’ prior notice, if deemed necessary to meet the requirements of the Canada Pension Plan.
 
(2)   Debentures payable in foreign currencies and related sinking funds invested in foreign currencies are reflected at rates of exchange in effect at March 31 in each of the years 2004 through 2008, respectively, and reflect currency-swap contracts.
 
(3)   Other long-term indebtedness includes capital leases, for the Consolidated Fund, in the amounts of $450.9 million, $433.8 million, $415.6 million, $396.1 million and $375.1 million, for the fiscal years ended, 2004, 2005, 2006, 2007 and 2008 respectively.
 
(4)   There were subsequent borrowings of $1,283.5 million and debt retirements of $759.25 million, as of March 11, 2009.
 
(5)   At March 31, 2008, the Public Debt Management Fund held $136.2 million that is available to repay or retire debentures of the Province at the discretion of the Governor-in-Council.
 
(6)   Funded debt does not include any unfunded pension liabilities or other retirement benefits of the Province.
 
(7)   Population at July 1 for the previous calendar year. Personal Income and Gross Domestic Product at Market Prices for the previous calendar year.
          In addition to the debt of the Consolidated Fund, there is a funded debt with other entities that comprise part of the Consolidated Entity. The major entities not included in the Consolidated Fund are Nova Scotia Power Finance Inc. and the Housing Development Corporation, and self-supporting entities such as the Halifax Dartmouth Bridge Commission, Highway 104, Nova Scotia Liquor Commission, and the Nova Scotia Gaming Corporation. As at March 31, 2008, total funded debt of the Consolidated Entity was $12,469.9 million.

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Derivative Financial Instruments
          The Province is party to financial instruments with off-balance sheet risk, either to hedge against the risks associated with fluctuations in foreign exchange rates or to manage risks associated with interest rate fluctuations. Foreign currency contracts are used to convert the liability for foreign currency borrowing and associated costs into Canadian or U.S. dollars. Interest rate contracts are used to vary the amounts and period for which interest rates on financial instruments are fixed or floating. The Province uses interest rate swap contracts to convert certain interest payments from fixed to floating. Foreign exchange contracts include forward and swap agreements. Interest rate contracts include swap agreements and options on swaps.
          The Department of Finance credit policy states that it executes derivative transactions only with well-rated counterparties. The minimum credit rating for counterparties to derivative transactions is “A”.
          The Province had the following interest and currency swap contracts outstanding for the fiscal year ended March 31, 2008.
                                         
    # of           Notional   Term   Mark to
    Swaps   Currency   Principal   Remaining   Market *
                    ($ thousands)   (years)   ($ millions)
 
    151     CDN$     1,899,994     51 days to 23     (10.7 )
 
    25     US$    3,294,000       4 to 14       (480.1 )
 
    2     UK     83,250     3 and 11     (9.8 )
 
    1     Euro     50,000       2       5.4  
 
*   Mark to Market is an indication of the swap’s market value as at March 31, 2008. This represents the estimated realizable gain (loss), and is equivalent to the present value of future savings (losses) based on market conditions as at March 31, 2008.
          The Province has also executed numerous foreign currency swap contracts/forward agreements to convert foreign denominated debt into Canadian or United States denominated debt. The mark to market of these swap contracts are included in the previous table, and the currency swap contracts are as follows:
                                 
    Original   Original   Current   Current
Termination Date   Currency   Principal   Currency   Principal
            (thousands)           (thousands)
SWAPS:
                               
October 28, 2011
  UK     23,250     CDN$     56,283  
April 16, 2019
  UK     60,000     CDN$     114,387  
February 27, 2012
  US$     500,000     CDN$     795,000  
July 27, 2013
  US$     300,000     CDN$     299,850  
March 15, 2016
  US$     150,000     CDN$     205,725  
January 26, 2017
  US$     500,000     CDN$     586,500  
February 1, 2019
  US$     200,000     CDN$     198,000  
July 1, 2019
  US$     200,000     CDN$     199,900  
November 15, 2019
  US$     244,000     CDN$     246,318  
March 1, 2020
  US$     300,000     CDN$     409,200  
May 1, 2021
  US$     300,000     CDN$     312,002  
April 1, 2022
  US$     300,000     CDN$     379,517  
July 30, 2022
  US$     300,000     CDN$     329,310  
February 24, 2010
  Euro     50,000     CDN$     72,235  

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          At March 31, 2008 the Province had entered into 5 forward agreements to convert future interest payments on foreign debt into Canadian dollars as follows:
                     
    Original   Original   Current   Current
Termination Date   Currency   Principal   Currency   Principal
        (thousands)       (thousands)
May 15, 2008 to November 14, 2008
  US$    49,380   CDN$     50,391  

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Debt Maturities and Sinking Funds
          The following table sets forth the maturities of total funded debt and related sinking fund balances, at March 31, 2008, from the Consolidated Fund as described in “Government Finance — Specific Accounting Policies” above, adopting the accounting policies, other than consolidation of government entities, described in “Government Finance — Specific Accounting Policies” above.
SCHEDULE OF DEBT MATURITIES AND RELATED SINKING FUND BALANCES (1)
FOR THE CONSOLIDATED FUND
                                 
Period Ending   Debt in     Debt in     Total Debt in        
March 31   Canadian Dollars     US Dollars     Canadian Dollars(2)     Sinking Funds(3)  
    (in millions)  
 
                               
Sinking Fund General
                          $ 738.2  
 
                             
2009
  $ 292.3     $     $ 292.3     $  
2010
    683.9             684.9        
2011
    675.8             675.8        
2012
    1,605.2             1,605.2        
2013
    81.9             81.9        
2014
    469.7             469.7       170.1  
 
                       
2009-2014
    3,809.8             3,809.8       908.3  
 
                       
2015-2019
    1,761.6             1,761.6       200.0  
2020-2024
    2,786.9             2,786.9       767.4  
2025-2029
    642.5             642.5        
2030-2034
    900.0             900.0        
2035-2039
    1,132.9             1,132.9        
2040-2044
                       
 
                       
 
    11,032.7     $       11,033.7     $ 1,875.7  
 
                       
 
(1)   This includes debt of public schools, courthouses, and certain capital lease obligations.
 
(2)   Canadian dollar-equivalent at rates of exchange in effect at March 31, 2008 or, if applicable, the rate of exchange in the associated swap.
 
(3)   In addition to these Sinking Funds, there are funds available for debt retirement in the Public Debt Management Fund that is comprised of $136.2 million in assets at March 31, 2008. During the fiscal year 2007-2008, a $55.9 million contribution was made to Sinking Funds, and total earnings to both the Sinking Fund and Public Debt Management Fund were $112.8 million and there were no redemptions.
          Until March 31, 2003, the Province provided sinking fund installments for all of its term debt issues except Canada Pension Plan (“CPP”) and Medium Term Notes (“MTN”) issues. As of March 31, 2003, sinking funds held for public issues without a sinking fund bond covenant, as well as CPP and MTN issues, have been moved to the “Sinking Fund General”, and are available at the discretion of the Minister of Finance to retire maturing debt issues. The Province continues to make sinking fund installments for those debentures that contain sinking fund bond covenants. On those issues, annual sinking fund installments generally range from one to three per cent of the original issue, but may vary slightly from year to year, based on actual and anticipated rates of return on sinking fund assets. Sinking fund payments relating to debentures payable in foreign currency are adjusted each year, as necessary, to reflect exchange rate movements since the date of issuance of the debentures. Sinking funds are treated as restricted assets and are used solely for debt retirement.
          Sinking fund assets are recorded at cost, which includes premiums and discounts associated with the purchase of these investments. These premiums and discounts are amortized on a straight-line basis over the term of the related investment. The unamortized portion of the premiums and discounts are included as part of the value of sinking funds. As of March 31, 2008, the unamortized premium was $58.6 million.

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          Annual cash contributions into the sinking fund and Public Debt Management Fund are invested in approved securities. Assets consist primarily of debentures of the provinces and Government of Canada with floating and fixed interest rates. Regarding the latter, the fixed interest rates on funds held at March 31, 2008, ranged from 4.30% to 10.0%, for Canadian funds, and from 4.45% to 9.50%, for U.S. funds. Earnings on investments are retained and reinvested in each of the sinking funds and Public Debt Management Fund. Sinking funds for debentures payable in U.S. currency are invested in U.S. dollar denominated investments. For those U.S. dollar issues that have been swapped to Canadian dollars, sinking funds are maintained in both Canadian and U.S. dollars. Debentures payable in foreign currencies, accrued interest thereon, and related sinking funds invested in foreign currencies are reflected in the accounts of the Province at the rate associated with the swap contact.
          As at March 31, 2008, the Consolidated Fund held financial assets in the sinking funds and Public Debt Management Fund totaling $2,011.9 million. These funds were comprised of $1,793.9 million in Canadian assets and $218.0 million in U.S. assets (USD $212.0 million converted to Canadian dollars at the March 31, 2008 foreign exchange rate). Total market value of both funds was $2,166.2 million at year-end.
          At March 31, 2008, the Province held $1,064.8 million in par value of its own debentures (carrying value of $1,177.7 million) in sinking funds and Public Debt Management Fund as active investments. These were comprised of $505.7 million in Canadian assets and $672.0 million in U.S. dollar assets. Of the $2,011.9 million the Province holds in financial assets for debt retirement, $136.2 million is held in the Public Debt Management Fund, while $1,875.7 million is held in sinking funds and the Sinking Fund General.
          The following table sets forth the sinking funds, by currency, of funded debt of the Province for the Consolidated Fund (as described in “Government Finance — Specific Accounting Policies” above) at March 31, 2008, adopting the accounting policies, other than consolidation of government entities, described in “Government Finance — Specific Accounting Policies” above.
PROVINCIAL RESTRICTED SINKING FUNDS FOR THE CONSOLIDATED FUND
         
    As at March 31, 2008  
    (in millions)  
 
       
For Issues Payable in:
       
Canadian Dollars
  $ 62.4  
United States Dollars (1)
    1,075.1  
 
     
 
  $ 1,137.5  
 
     
 
(1)   Canadian dollar equivalent at the rate of exchange in effect at March 31, 2008.
          Based on rates of return on investments held in the sinking funds and the schedule of maturities for debt outstanding at March 31, 2008, the Province estimates debt refinancing requirements for the Consolidated Entity during the five fiscal years ending March 31, 2009 to 2013 to be $371.9 million for the fiscal year 2008-2009, $759.8 million for the fiscal year 2009-2010, $751.0 million for the fiscal year 2010-2011, $1,679.1 million for the fiscal year 2011-2012, and $156.5 million for the fiscal year 2012-2013.

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Current Liabilities
          The following table sets forth the amount of short-term debt of the Consolidated Entity (as described in “Government Finance — Specific Accounting Policies” above) at March 31, 2008, adopting the accounting policies as described in “Government Finance — Specific Accounting Policies” above.
          SHORT-TERM DEBT FOR THE CONSOLIDATED ENTITY
                                         
    Fiscal years Ended March 31  
    2004     2005     2006     2007     2008  
    (Millions $)  
Bank Advances and Short-term Borrowings
  $ 585.3     $ 1,048.4     $ 900.1     $ 790.9     $ 1,090.9  
Accounts Payable & Accrued Liabilities
    1,079.6       1,299.7       1,314.8       1,315.4       1,531.0  
Accrued Interest
    241.0       229.4       204.7       200.6       188.6  
 
                             
 
  $ 1,905.9     $ 2,577.4     $ 2,419.6     $ 2,308.5     $ 2,831.1  
 
                             
          Offsetting the above current liabilities, current assets (cash and short-term investments, accounts receivable, and short-term advances) for the Consolidated Entity at March 31, 2008 totaled $1,747.0 million.
Guaranteed Debt
          The following table sets forth the guaranteed debt of the Consolidated Entity for the fiscal years 2004, 2005, 2006, 2007 and 2008.
          GUARANTEED DEBT FOR CONSOLIDATED ENTITY
                                         
    Fiscal years Ended March 31  
            Restated     Restated              
    2004     2005(1)     2006(1)     2007     2008  
    (Millions $)  
Guaranteed Debt:
                                       
Payable in Canadian Dollars
  $ 463.5     $ 415.7     $ 418.9     $ 409.6     $ 380.7  
Payable in U.S. Dollars (2)
    0.2       0.2       0.0       0.0       0.0  
 
                             
Total Guaranteed Debt
    463.7       415.9       418.9       409.6       380.7  
 
                             
Deduct:
                                       
Provision for Guarantee Payout
    43.3       58.8       52.7       69.9       76.7  
 
                             
Net Guarantees not Reflected in Statements
  $ 414.9     $ 357.1     $ 366.2     $ 339.7     $ 304.0  
 
                             
 
(1)   Restated to correct the official amount guaranteed.
 
(2)   Amounts payable in U.S. dollars are reflected herein at the Canadian dollar-equivalent at rates of exchange in effect March 31, 2004 and 2005 respectively.
          The table for guaranteed debt for the Consolidated Entity does not include the $1,008.4 million of gross debt, as at March 31, 2008, of the Nova Scotia Power Finance Corporation debt guaranteed by the Province of Nova Scotia, which has been fully defeased.

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Pension Funds
          The Province evaluates its pension funds using two methods. The first method, as prescribed by the CICA, measures a plan sponsor’s potential liability, with rates of return based on management’s best estimate (and gains and losses amortized over time). The financial statements of the Province’s pension plans calculated on this basis are provided in Note 7 to the Public Accounts included as Exhibit (2) to this Form 18-K. The second method, used for the purpose of determining the funded status of the plan on a going-concern basis, as well as the total current service cost and contributions to the plan for the upcoming year, uses a rate of return based on management’s best estimate less a margin for conservatism. The tables and discussions included in the following section are shown using the latter funding basis of calculation.
Public Service Superannuation Fund
          The Minister of Finance is the trustee of the Public Service Superannuation Fund (the “Superannuation Fund”). Employees of the Province and certain of its entities are entitled to receive pension benefits pursuant to the provisions of a plan established under the Public Service Superannuation Act. Employees’ and matching employer contributions are paid into the Superannuation Fund, while pensions, refunds, and transfer values are paid from it.
          The Superannuation Fund, which is not part of the Consolidated Fund, is invested in Federal, provincial, municipal, and corporate securities, and real estate.
          The Auditor General of Nova Scotia audits the financial statements of the Superannuation Fund. The following table sets forth the audited Statement of Continuity of the Superannuation Fund.
STATEMENT OF CONTINUITY OF THE PUBLIC SERVICE SUPERANNUATION FUND
                                         
    Fiscal Year Ended March 31  
    2004     2005     2006     2007     2008  
    (in millions)  
Opening Balance
  $ 2,555.5     $ 3,035.8     $ 3,188.8     $ 3,541.8     $ 3,817.0  
 
                             
Add:
                                       
Employee Contributions
    42.6       45.1       49.9       56.3       68.4  
Employer Contributions
    37.4       43.9       47.8       55.1       64.2  
Income Earned
    178.7       190.4       314.8       295.2       286.9  
Increase (Decrease) in Market Value of Investments
    413.0       52.8       131.4       75.5       (430.5 )
Transfers from other pension plans
    4.0       1.4       1.5       2.4       5.5  
 
                             
 
    675.7       333.5       545.4       484.4       (5.5 )
 
                             
 
    3,231.2       3,369.3       3,734.2       4,026.1       3,811.6  
 
                             
Deduct:
                                       
Pensions Paid
    155.4       164.1       173.4       183.9       194.5  
Refunds & Transfers Out
    24.4       8.1       10.5       15.9       23.9  
Operating Expenses
    7.6       8.2       8.5       9.3       9.8  
Prior period adjustment(1)
    8.1       0.0       0.0       0.0       0.0  
 
                             
 
    195.4       180.4       192.5       209.1       228.2  
 
                             
Closing Balance
  $ 3,035.8     $ 3,188.8     $ 3,541.8     $ 3,817.0     $ 3,583.4  
 
                             
 
(1)   Calculations of accrued income for fixed income securities, as originally stated in financial statements for prior years, were found to contain errors relating to real return bonds. These errors were corrected in the fiscal year ended March 31, 2004.

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          The latest actuarial valuation, for funding purposes, of the Superannuation Fund was performed by Mercer (Canada) as at December 31, 2007. The actuarial valuation projects liabilities for each member on the basis of service earned to date and projected average salaries for the five highest years at the date of retirement (the “projected unit credit actuarial cost method”). The major economic assumption used in the valuation was a real rate of return on investments of 4.25%. Inflation was assumed to be 2.5%, while salary increases were assumed to average 2.5% plus merit/seniority based on attained age. The assumed retirement age was based on a 35% probability that a member would retire upon attainment of age 54 and 80 points (age plus service); otherwise the member was assumed to retire at the earlier of age 60 and 35 years of service (or in one year’s time if the member had already attained either age 60 or 35 years of service). The actuarial valuation indicated that at December 31, 2007, the Superannuation Fund had actuarial liabilities with a present value of $4,437.7 million, assets with a present value of $3,705.0 million, an unfunded liability of $732.7 million, and a funded ratio of 83.5%. The Superannuation Fund’s actuaries have provided an estimated present value for the Superannuation Fund’s actuarial liabilities as at March 31, 2008 of $4,496.2 million. Assets had an actuarial value of $3,584.0 million, resulting in an unfunded liability of $912.2 million and a funded ratio of 79.7%. Market conditions have negatively impacted the Fund since the last valuation. The Nova Scotia Pension Agency staff has estimated that as of September 30, 2008, the actuarial deficiency was $1,283.9 million and the funded ratio was 72.2%.
          Provincial legislation and regulations provide that certain payments to pensioners are charged to the Consolidated Fund rather than to the Superannuation Fund. These payments, total and net of recoveries, amounted to $16.7 million and $14.6 million, respectively, for the fiscal year ended March 31, 2008.
          The Public Service Superannuation Act provides that the Province must make payment out of its Consolidated Fund if the Superannuation Fund is insufficient to provide for pension payments as they become due.

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Teachers’ Pension Fund
          Until April 1, 2006, the Minister of Finance was the trustee of the Teachers’ Pension Fund (the “Teachers’ Fund”). Effective April 1, 2006, under a joint trust agreement between the Province of Nova Scotia and the Nova Scotia Teachers’ Union, the Teachers’ Pension Plan Trustee Incorporated replaced the Minister of Finance as trustee.
          Teachers employed by the school boards and Nova Scotia Community College are entitled to receive pension benefits pursuant to the provisions of a plan established under the Teachers’ Pension Act. Employees’ and matching employer contributions are paid into the Teachers’ Fund, while pensions, refunds and transfer values are paid from it. The Teachers’ Fund is invested in Federal, provincial, municipal and corporate securities, and real estate.
          The annual financial statements of the Teachers’ Fund are audited by an auditor appointed by the trustee. The auditor for the most recent financial statements was Grant Thornton. The following table sets the continuity of the Teachers’ Fund, as audited, for the five fiscal years ended December 31, 2007.
STATEMENT OF CONTINUITY OF THE TEACHERS’ PENSION FUND
                                         
    Fiscal Year Ended December 31  
    2003(1)     2004     2005     2006     2007  
    (in millions)  
Opening Balance
  $ 3,350.7     $ 3,709.2     $ 3,900.4     $ 4,384.4     $ 4,758.4  
 
                             
Add:
                                       
Employee Contributions
    55.4       57.2       58.9       61.3       62.1  
Employer Contributions
    69.7       55.3       200.6 (2)     59.2       60.3  
Income Earned
    143.6       251.4       329.9       366.0       387.1  
Increase (Decrease) in Market Value of Investments
    327.6       76.0       161.4       187.5       (343.9 )
Transfers from other pension plans
    1.2       1.6       1.4       2.0       4.7  
 
                             
 
    597.5       441.6       752.1       675.9       170.3  
 
                             
 
    3,948.2       4,150.8       4,652.5       5,060.3       4,928.8  
 
                             
Deduct:
                                       
Pensions Paid
    219.8       238.1       257.1       286.4       305.4  
Refunds & Transfers Out
    3.3       3.1       1.7       5.0       2.1  
Operating Expenses
    7.9       9.2       9.3       10.5       11.3  
Prior Period Adjustments(1)
    8.0       0.0       0.0       0.0       0.0  
 
                             
 
    239.0       250.4       268.1       301.9       318.8  
 
                             
Closing Balance
  $ 3,709.2     $ 3,900.4     $ 4,384.4     $ 4,758.4     $ 4,610.0  
 
                             
 
(1)   Calculations of accrued income for fixed income securities, as originally stated in financial statements for prior years, were found to contain errors relating to real return bonds. These errors were corrected, and comparative accrued investment income amounts for the fiscal year ended December 31, 2003 were restated in the financial statements for the fiscal year ended December 31, 2004, the figures shown above are the restated figures.
 
(2)   As part of an agreement between the Province of Nova Scotia and the Nova Scotia Teachers’ Union signed on June 22, 2005 that led to joint trusteeship, the Province made a contribution to the Teachers’ Fund of $142.0 million plus accured interest. This amount represented the actuarial value of indexing that teachers would be relinquishing under the agreement. Indexing for future pensioners will be contingent on the funding level of the pension plan.
          The latest actuarial valuation, for funding purposes, of the Teachers’ Fund was performed by Mercer (Canada) Limited as at December 31, 2007, using the projected unit credit actuarial cost method. The major

55


 

economic assumption used in the valuation was a real rate of return on investments of 4.25%. Inflation was assumed to be 2.5%, while salary increases were assumed to average 2.75% plus merit/seniority based on attained age. The assumed retirement age was based on a 60% probability that a member would retire at the earliest age at which he or she would be eligible for an unreduced pension; otherwise the member was assumed to retire at the earliest of age 65, 35 years of service, and age 60 with 10 years of service. The actuarial valuation indicated that at December 31, 2007, the Teachers’ Fund had actuarial liabilities with a present value of $5,065.6 million, assets of $4,610.0 million, an unfunded liability of $455.6 million and a funded ratio of 91.0%. Market conditions have negatively impacted the Fund since the last valuation. The Nova Scotia Pension Agency staff has estimated that as of September 30, 2008, the actuarial deficiency was $1,089.5 million and the funded ratio was 78.9%.
          On June 22, 2005, the Province and the Nova Scotia Teachers’ Union signed an agreement to address the unfunded obligation of the Fund and to provide the framework for joint trusteeship of the Nova Scotia Teachers’ Pension Fund, which became effective on April 1, 2006. As part of the agreement, the Province made a one-time payment of $142.0 million in June 2005 as its contribution to the plan to offset changes to the indexing provisions agreed to by teachers effective April 1, 2005 upon changes to the Teachers’ Pension Act Regulations. The accounting impact on the total accrued benefit obligation was estimated by management to be $230.3 million; however, the precise amount will be impacted over time by a number of factors that will affect the calculation, including, but not limited to, the rate of inflation, the funded status of the plan, the percentage of members who opted for the new rules, the return on plan assets and the number of teachers who retired prior to August 1, 2006.
          Under the joint trust agreement between the Province of Nova Scotia and the Nova Scotia Teachers’ Union, the Province effective April 1, 2006, out of its Consolidated Fund, is responsible for 50% of the payment if the Teachers’ Fund is insufficient to provide for pension payments as they become due.
Sydney Steel Corporation Superannuation Fund
          The Sydney Steel Corporation Superannuation Fund was established under the Sydney Steel Corporation Sale Act effective March 1, 2001. The Fund assumed responsibility for the assets and obligations of the former Sydney Steel Corporation pension plans. Under subsection 7(9) of the Sydney Steel Corporation Sale Act, the Province of Nova Scotia has assumed responsibility to fund any shortfalls arising under this Fund. The remaining former Sydney Steel Corporation Pension Fund assets, in the amount of $70.0 million, were transferred to the Sydney Steel Corporation Superannuation Fund.
Three pension plans are covered by the Fund.
    United Steelworkers of America Pension Plan is a non-contributory defined benefit plan that covers employees of Sydney Steel Corporation who are member of Locals 1064, 6516, 6537 of the United Steelworkers of America. Under the plan, contributions were made only by Sydney Steel Corporation.
 
    Salaried Pension Plan is a partially contributory defined pension plan covering the salaried employees of Sydney Steel Corporation. Under the plan, contributions were made by plan members and by Sydney Steel Corporation.
 
    Canadian Union of Public Employees Pension Plan is a non-contributory defined benefit plan that covers employees of Sydney Steel Corporation who are members of Local 1675 of the Canadian Union of Public Employees. Under the plan, contributions were made only by Sydney Steel Corporation.
          The Auditor General of Nova Scotia audits the annual financial statements of the Sydney Steel Corporation Superannuation Fund.
          The following table sets forth the continuity of the Fund, as audited, for the five fiscal years ended March 31, 2008.

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STATEMENT OF CONTINUITY OF THE SYDNEY STEEL CORPORATION
SUPERANNUATION FUND
                                         
    Fiscal Year Ended March 31  
    2004     2005     2006     2007     2008  
    (in millions)  
Opening Balance
  $ 16.8     $ 15.3     $ 11.5     $ 8.4     $ 2.8  
 
                             
Add:
                                       
Employee Contributions
    0.0       0.0       0.0       0.0       0.0  
Employer Contributions
    19.8       19.5       19.5       16.9       18.7  
Income Earned
    1.7       1.6       1.6       1.3       0.5  
Increase (Decrease) in Market Value of Investments
    1.6       (1.0 )     (0.2 )     (1.0 )     (0.5 )
Other
    0.0       0.0       0.0       0.0       0.0  
 
                             
 
    23.1       20.1       20.9       17.2       18.7  
 
                             
 
    39.9       35.4       32.4       25.6       21.6  
 
                             
Deduct:
                                       
Pensions Paid
    24.3       23.8       23.8       22.6       22.1  
Refund of Contributions
    0.0       0.0       0.0       0.0       0.0  
Other
    0.3       0.1       0.2       0.2       0.2  
 
                             
 
    24.6       23.9       24.0       22.8       22.3  
 
                             
Closing Balance
  $ 15.3     $ 11.5     $ 8.4     $ 2.8       ($0.7 )
 
                             
          As at March 31, 2007 the United Steelworkers of America Pension Plan and the Canadian Union of Public Employees Pension Plan were exhausted of funds. The funds of the Salaried Pension Plan were exhausted in October 2007. The Province has been making the payments for the plans whose assets have been exhausted.
          The most recent actuarial valuations of the three pension plans funded from the Sydney Steel Corporation Superannuation Fund were performed by Morneau Sobeco as at December 31, 2005, using the projected unit credit actuarial cost method. The major economic and demographic assumptions used in each valuation included a discount rate of 5.95%, an inflation rate of 2.75% (applicable to the Salaried Pension Plan only) and a 100% probability that a member would retire at the earliest age at which he or she would be eligible for an unreduced pension. The actuarial valuations indicated that as at December 31, 2005, the United Steelworkers of America Pension Plan had actuarial liabilities with a present value of $166.2 million, assets of $1.5 million, an unfunded liability of $164.7 million, and a funded ratio of 0.9%. The Salaried Pension Plan had actuarial liabilities with a present value of $53.7 million, assets of $7.6 million, an unfunded liability of $46.1 million, and a funded ratio of 14.2%. The Canadian Union of Public Employees Pension Plan had actuarial liabilities with a present value of $2.5 million, assets of $30,900, an unfunded liability of $2.4 million, and a funded ratio of 1.3%.
          As at March 31, 2008, combined net assets available for benefits for the three plans had a market value of negative $0.7 million, while actuarial liabilities for the three plans totaled $218.9 million. The combined unfunded liability was $219.6 million, while the combined funded ratio was negative 0.3%. This deficiency was previously recognized by the Province in its accounts. The major economic assumptions used in determining the actuarial liabilities as at March 31, 2008 included a discount rate of 4.95% and an inflation rate of 2.5%.

57


 

PUBLIC SECTOR FUNDED DEBT
Public Sector Funded Debt
          The debt burden, for which the public sector of the Province is responsible, consists of the funded debt and guaranteed debt of the Province, and the underlying debt of municipalities and Crown agencies that has not been funded or guaranteed by the Province of Nova Scotia.
          The following table sets forth the public sector funded debt for the Consolidated Fund (as described in “Government Finance — Specific Accounting Policies” above) as well as the Guaranteed Debt of Governmental Units for the five fiscal years ended March 31, 2004 through to March 31, 2008.
PUBLIC SECTOR FUNDED DEBT (1)
                                         
                    Restated     Restated        
    2004     2005     2006     2007     2008  
    (in millions unless otherwise indicated)  
Total Provincial Funded Debt (2)
  $ 13,617.2     $ 12,461.6     $ 11,404.4     $ 11,718.3     $ 11,032.7  
 
                             
Guaranteed Debt of the Province(3)
                                       
Industrial Development and Other
    286.5       251.1       262.1       260.4       243.2  
Mortgages
    177.2       164.8       156.8       149.2       137.5  
 
                             
Total Guaranteed Debt
    463.7       415.9       418.9       409.6       380.7  
 
                             
Underlying Debt (4)
                                       
Housing
    12.5       14.1       6.0       7.6       8.6  
Municipal (5)
    0.2       0.1       0.1       0.0       0.0  
Other
    0.0       0.0       12.1       15.0       13.9  
 
                             
Total Underlying Debt
    12.7       14.2       18.2       22.6       22.5  
 
                             
Total Public Sector Funded Debt
    14,093.6       12,891.7       11,841.5       12,150.5       11,436.0  
 
                             
Deduct Sinking Funds and Debt Retirement Fund
    2,919.8       2,599.4       2,094.8       1,906.8       2,011.9  
 
                             
Net Public Sector Funded Debt
  $ 11,173.8     $ 10,292.3     $ 9,746.7     $ 10,243.7     $ 9,424.9  
 
                             
 
                                       
Per Capita ($) (6)
  $ 11,931.4     $ 10,972.6     $ 10,413.1     $ 10,954.7     $ 10,088.9  
As a Percentage of:
                                       
Personal Income (6)
    45.7 %     40.5 %     36.6 %     37.1 %     32.6 %
Gross Domestic Product at Market Prices (6)
    38.7 %     34.5 %     31.2 %     32.3 %     28.5 %
 
(1)   Debentures payable in foreign currencies and related sinking funds invested in foreign currencies are reflected at rates of exchange in effect at March 31 in each of the years 2004 through 2008, respectively, and reflect currency-swap contracts. It does not include the debt of Government Business Enterprises.
 
(2)   See table on “Funded Debt for the Consolidated Fund”, for more detailed information on this figure.
 
(3)   The Province guarantees certain debt of the Student Loan program and industrial development agencies, and mortgages of the Housing Development Corporation.
 
(4)   Underlying debt does not include debt of Nova Scotia Housing Development Corporation ($314.0 million at March 31, 2008), a Provincial Crown Corporation established by an Act of the House of Assembly, which debt is secured by mortgages issued to the Corporation.
 
(5)   See “Nova Scotia Municipal Finance Corporation” under “Certain Crown Corporation and Agencies”.
 
(6)   Population as of July 1 of the preceding calendar year Personal income and gross domestic product at market prices are for the previous calendar year.

58


 

CERTAIN CROWN CORPORATIONS AND AGENCIES
          Crown corporations and agencies are special purpose entities to which the Province has delegated responsibility for the operation of certain of its programs. These entities are subject to policy direction by the Government and have been provided with financial assistance from the Province, where required, either through debt guarantees, loans, equity investments, or grants. See “Government Finance — Loans and Investments”, and “Provincial Debt — Guaranteed Debt”. The Province prepares consolidated financial statements whereby the operating results of the crown corporations and agencies became part of the consolidated Provincial surplus / (deficit). The more significant of the Province’s corporations and agencies are discussed below.
Sydney Steel Corporation
          Sydney Steel Corporation (“Sysco”), a Provincial Crown Corporation established by an Act of the House of Assembly in 1967, owned a steel mill in Sydney, Nova Scotia that ceased operations in July 2000. With the Corporation’s operations being discontinued, work was undertaken to dismantle and sell the remaining assets, perform environmental clean up, and conduct development activities for future land use.
          The Province’s Statement of Operations for the year ended March 31, 2000, included an Unusual Item for the sale of Sysco in the amount of $475.3 million. Included in this amount were $96.8 million for pensions and severance costs, $250 million for environmental remediation at Sysco, $68.5 million for environmental costs at the Sydney Tar Ponds, $14 million for Sysco losses to October 31, 2000, and $46 million for expected loss on sale of assets. As at March 31, 2000, the Province assumed the outstanding debt of Sysco in an amount of $154.7 million.
          During the period 2001-2006, the Province provided contributions of $58.8 million to the Corporation to fund certain closure, demolition and remediation expenditures. It was determined that the Corporation did not require these direct contributions due to better than expected recoveries on asset and scrap sales since the closure. The Province directed the Corporation to return these contributions to the Sysco Decommissioning Fund.
          Sysco will continue to exist to address residual issues arising from historic operations (See — Litigation).
Sydney Tar Ponds Agency
          The Sydney Tar Ponds is a hazardous chemical waste site adjacent to Sysco created by discharges from Sysco’s coke ovens into an adjacent creek. Engineering and environmental studies have generated estimates for the cost of remediation of the Sydney Steel Corporation and adjacent sites as well as the Sydney Tar Ponds site. As noted under Sydney Steel Corporation, the Province recorded liabilities totaling $318.5 million in 2000, and in 2006-2007 there was a further $58.8 million contributed by Sydney Steel Corporation to the environmental site clean-up provision (Sysco Decommissioning Fund). At March 31, 2008, $257.6 million remains unspent in the Sysco Decommissioning Fund. The provision will continue to be utilized for future decommissioning, demolition and remediation of Sysco’s and adjacent sites, including the Sydney Tar Ponds site. Based on currently available information, the provision, in aggregate, appears to be sufficient to cover the estimated costs to remediate these sites.
          The Province of Nova Scotia and the Federal Government entered into a memorandum of understanding on May 14, 2004 respecting further cost sharing this project. The agreement between the Federal Government and the Province of Nova Scotia is expected to ensure the diligent and cost-effective management of the remediation project. The sites are expected be cleaned up on a cost-shared basis over eight years for a total of $400 million, with the Federal Government contributing $280 million and the Province, the lesser of 40% of the actual cost incurred or $120 million.
          In July 2006, the Joint Environmental Review Panel, an independent review panel established by the Federal Government, released recommendations regarding the process of remediation of the Sydney Tar Ponds and Coke Ovens Sites Remediation Project. The report contained numerous recommendations regarding refinements to the clean-up plan and on-going monitoring. The Federal Government and Province of Nova Scotia have approved a modified plan to clean up the Tar Ponds and Coke Ovens in response to the 55 recommendations of the Joint Environmental Review Panel.

59


 

          The proposed project is expected to treat contaminated Tar Ponds sediments in place with a process known as solidification and stabilization, which involves mixing the sediments with hardening agents like cement powder. Then the sites will be contained and capped within an engineered containment system, followed by site development and long-term monitoring and maintenance. The cleanup will not include incineration.
Nova Scotia Resources Limited
          Nova Scotia Resources Limited (“NSRL”), formerly a corporation owned by the Province, was established to invest in and manage the Province’s participation in petroleum, energy, and mineral projects. The Province has engaged in transactions since 1999 to liquidate the assets of NSRL. The total proceeds from the sale of NSRL assets amounted to $408 million. The Province recorded gains on the sale of NSRL assets of $8.7 million in fiscal year 2003-2004. There were larger gains in earlier fiscal years.
          The Province, though NSRL, had a 50% working interest in the Deep Panuke project area that was sold to the other 50% holder, PanCanadian Petroleum Limited (now EnCana Corporation), in October 1999, in exchange for a two per cent gross overriding royalty on the Province’s interest, which translates into one per cent of all Deep Panuke petroleum revenues. The gross overriding royalty was transferred in the summer of 2001 to 3052155 Nova Scotia Limited, a wholly owned Provincial Crown Corporation.
          The Crown Corporation 3052155 Nova Scotia Limited has assumed the Promissory Note, originally issued by NSRL, with the Canada-Nova Scotia Offshore Petroleum Board in the amount of $2.5 million as evidence of financial responsibility with respect to its abandonment obligations related to the Cohasset-Panuke project. The Province has provided a guarantee on this note, which was in place as at March 31, 2008.
Nova Scotia Municipal Finance Corporation
          Nova Scotia Municipal Finance Corporation (“MFC”), a Provincial Crown Corporation established by an Act of the House of Assembly in 1979, acts as a central borrowing agency for municipalities and municipal enterprises in Nova Scotia. Under the incorporating legislation, municipalities and municipal enterprises are required to raise their long-term capital requirements through the MFC except for borrowings from the Federal Government, the Province, another municipality, or their agencies.
          The following table sets forth the revenues, expenditures and income for MFC for the five fiscal years ended March 31, 2004 through March 31, 2008.
SUMMARY OF NET REVENUE FOR MUNICIPAL FINANCE CORPORATION
                                         
    2004     2005     2006     2007     2008  
    (in millions)  
Total Revenues
  $ 30.8     $ 33.1     $ 33.8     $ 34.0     $ 35.6  
Total Expenditures
    30.8       32.9       33.6       33.8       35.3  
 
                             
Net Revenue
  $ 0.0     $ 0.2     $ 0.2     $ 0.2     $ 0.3  
 
                             
Nova Scotia Power Finance Corporation
          On August 12, 1992, the Province of Nova Scotia completed the public sale of all the common shares of Nova Scotia Power Inc. (“NSPI”), an electric utility that had assumed the net operating assets of Nova Scotia Power Corporation (“NSPC”). Prior to that date, the utility was a Provincial Crown Corporation. Neither the Province nor NSP Finance Corporation will guarantee, assume or otherwise be responsible for any obligations of NSPI, and NSPI has agreed to indemnify NSP Finance Corporation and the Province against any claims arising out of the liabilities and commitments assumed by NSPI.
          In accordance with the Nova Scotia Power Corporation Privatization Agreement passed in 1992, the Nova Scotia Power Finance Corporation provides for defeasance of its debt. The portfolio of defeasance assets consists of

60


 

Nova Scotia Power Corporation, other provincial government and utilities, Federal Government and Federal U.S. Treasury bonds, coupons or residuals.

61


 

FOREIGN EXCHANGE
          Canada maintains a floating exchange rate for the Canadian dollar, which permits the rate to be determined by fundamental market forces without intervention except as required to maintain orderly market conditions.
          Closing spot exchange rates for the U.S. dollar in Canada, expressed in Canadian dollars per U.S. dollar, are shown in the table below for 2004 through 2008.
                                         
Spot Rates   2004     2005     2006     2007     2008  
 
High
    1.3957       1.2696       1.1794       1.1878       1.2935  
Low
    1.1759       1.1518       1.0948       0.9066       0.9765  
Close
    1.2020       1.1163       1.1654       0.9913       1.2180  
Average Noon
    1.3015       1.2116       1.1341       1.0748       1.0660  
 
Source: Bank of Canada
                                       
          On March 11, 2009 the closing spot rate for the US dollar in Canada, as reported by the Bank of Canada, was $1.2862.
          Unless otherwise specified or the context otherwise requires, the following table sets forth the conversion rates used in this Annual Report for foreign currency borrowings.
                                         
                    US (noon)   Pound   Japanese
Closing Rate   at March 31     Euro     Dollar     Sterling     Yen  
 
 
    2004       1.6109       1.3105       2.4116       0.012577  
 
    2005       1.5689       1.2096       2.2848       0.011283  
 
    2006       1.4169       1.1671       2.0299       0.009933  
 
    2007       1.5418       1.1529       2.2697       0.009806  
 
    2008       1.6244       1.0279       2.0407       0.010290  

62


 

OFFICIAL STATEMENTS
          The Minister of Finance or his authorized representatives acting in their official capacities have supplied the information set forth in this Exhibit to Form 18-K.

63


 

TABLE 1 — STATEMENT OF DEBENTURES OUTSTANDING AS AT MARCH 31, 2008
         
Sinking Fund General
  $ 738,198,657  
Canada Pension Plan Fund (A)
                                                         
                    Amount                            
    Date     Maturity     Outstanding             Coupon     Canadian     Sinking Funds  
Series   Of Issue     Date   (in thousands)       Rate     Dollars     (C)  
C30
  01-Jun-89   01-Dec-08     78,450,000     CAD     10.080       78,450,000          
C31
  01-Jun-90   01-Mar-10     85,218,000     CAD     9.900       85,218,000          
C32
  01-May-91   01-Aug-10     46,648,000     CAD     10.580       46,648,000          
C34
  01-May-92   02-Jul-11     78,408,000     CAD     9.920       78,408,000          
C35
  03-May-93   02-Jul-12     55,808,000     CAD     9.370       55,808,000          
C36
  01-Mar-99   01-Mar-19     27,102,000     CAD     5.870       27,102,000          
C37
  03-Mar-00   03-Mar-20     73,922,000     CAD     6.610       73,922,000          
C38
  02-Mar-01   02-Mar-21     78,277,000     CAD     6.400       78,277,000          
C39
  01-Mar-02   01-Mar-22     96,251,000     CAD     6.400       96,251,000          
C40 (D)
  01-Mar-04   01-Mar-24     90,597,000     CAD     5.390       90,597,000          
C41
  02-Jan-05   02-Jan-25     85,762,000     CAD     5.270       85,762,000          
C42
  03-Mar-06   03-Mar-36     91,752,000     CAD     4.700       91,752,000          
C43
  02-Mar-07   03-Mar-37     109,641,000     CAD     4.570       109,641,000          
C44
  02-Mar-08   02-Mar-38     81,516,000     CAD     4.850       81,516,000          
 
                                                   
 
 
                  $ 1,079,352,000                     $ 1,079,352,000     $ 738,198,657  
 
                                                 

64


 

TABLE 1 — STATEMENT OF DEBENTURES OUTSTANDING AS AT MARCH 31, 2008
Medium-Term Promissory Notes
                                                         
    Date     Maturity     Amount             Coupon     Canadian     Sinking Funds  
Series   Of Issue     Date     Outstanding             Rate     Dollars     (C)  
P21
  30-Oct-97   14-Mar-14   $ 44,000,000     CAD     9.000     $ 44,000,000          
P35 (D)
  21-May-99   21-May-08     25,000,000     CAD     5.580       25,000,000          
P49
  16-Apr-01   16-Apr-08     40,000,000     CAD   Floating     40,000,000          
P75
  16-Apr-03   16-Apr-08     125,000,000     CAD   Floating     125,000,000          
P77 (D) (G)
  14-Jul-03   14-Jul-15     35,000,000     CAD   Step-Up     35,000,000          
P78 (D)
  02-Sep-03   01-Jun-17     50,000,000     CAD     5.460       50,000,000          
P102 (D)
  26-Apr-06   01-Jun-13     100,000,000     CAD     4.500       100,000,000          
P103 (D)
  24-Oct-06   24-Oct-21     200,000,000     CAD     4.450       200,000,000          
 
                                                   
 
 
                  $ 619,000,000                     $ 619,000,000     $ 0.0  
 
                                                   

65


 

TABLE 1 — STATEMENT OF DEBENTURES OUTSTANDING AS AT MARCH 31, 2008
Payable in Canadian Dollars
                                                         
                                                    Sinking Funds in  
    Date     Maturity     Amount                     Canadian     Canadian Dollars  
Series   Of Issue     Date     Outstanding             Rate     Dollars     (C)  
7T (B)
  07-Sep-78   07-Sep-08     800,000     CAD     9.750     $ 800,000          
9K
  30-Jan-92   30-Jan-22     200,000,000     CAD     9.600       200,000,000       62,382,306  
9Z
  03-Oct-97   01-Jun-27     550,000,000     CAD     6.600       550,000,000          
A4
  20-Jan-99   01-Jun-09     250,000,000     CAD     5.400       250,000,000          
A4
  05-Mar-99   01-Jun-09     250,000,000     CAD     5.400       250,000,000          
A8
  01-Nov-00   01-Sep-10     300,000,000     CAD     6.400       300,000,000          
A8
  26-Jun-00   01-Sep-10     300,000,000     CAD     6.400       300,000,000          
B1
  14-May-01   01-Jun-11     350,000,000     CAD     6.250       350,000,000          
B1
  12-Oct-01   01-Jun-11     300,000,000     CAD     6.250       300,000,000          
B2
  12-Jun-01   01-Dec-31     300,000,000     CAD     6.600       300,000,000          
B5
  01-Dec-03   01-Jun-33     200,000,000     CAD     5.800       200,000,000          
B5
  30-Jan-04   01-Jun-33     200,000,000     CAD     5.800       200,000,000          
B5
  12-Sep-03   01-Jun-33     200,000,000     CAD     5.800       200,000,000          
B6
  14-Jan-05   14-Jan-15     200,000,000     CAD     4.700       200,000,000          
B7
  30-Jun-05   01-Jun-35     150,000,000     CAD     4.900       150,000,000          
B7
  03-Jun-05   01-Jun-35     200,000,000     CAD     4.900       200,000,000          
B8
  25-Jan-06   01-Jun-37     300,000,000     CAD     4.500       300,000,000          
B8
  10-Nov-06   01-Jun-37     200,000,000     CAD     4.500       200,000,000          
B9
  18-Aug-06   18-Aug-16     300,000,000     CAD     4.600       300,000,000          
 
                                                   
 
Total Payable in Canadian dollars           $ 4,750,800,000                     $ 4,750,800,000     $ 62,382,306  
 
                                                 

66


 

TABLE 1 — STATEMENT OF DEBENTURES OUTSTANDING AS AT MARCH 31, 2008
Payable in Pound Sterling
                                                         
                                            Equivalent   Sinking Funds in
    Date   Maturity   Amount                   in Canadian   Canadian Dollars
Series   Of Issue   Date   Outstanding           Rate   Dollars   (C)
8C (E)
  31-Oct-81   31-Oct-11     23,250,000     GBP     16.75       56,283,147          
8P (E)
  18-Apr-84   18-Apr-19     60,000,000     GBP     11.75       114,386,580          
 
                                                       
 
                    83,250,000                       170,669,727     $    
 
                                                       
 
                                                       
Adjustments relating to swap agreements             (83,250,000 )                     (170,669,727 )        
 
                                                       
 
                                                       
Total Payable in Pound Sterling                                          
Payable in Euro
                                                         
                                            Equivalent     Sinking Funds in  
    Date     Maturity     Amount                     in Canadian     Canadian Dollars  
Series   Of Issue     Date     Outstanding             Rate     Dollars     (C)  
P44 (E)
  24-Feb-00   24-Feb-10     50,000,000     EUR     5.20       72,235,000          
 
                                                   
 
                    50,000,000                       72,235,000     $  
 
                                                   
 
                                                       
Adjustments relating to swap agreements             (50,000,000 )                     (72,235,000 )        
 
                                                   
 
                                                       
Total Payable in Euro
                                                 

67


 

TABLE 1 — STATEMENT OF DEBENTURES OUTSTANDING AS AT MARCH 31, 2008
Payable in United States Dollars
                                                         
                                            Equivalent     Sinking Funds in  
    Date     Maturity     Amount                     in Canadian     Canadian Dollars  
Series   Of Issue     Date     Outstanding             Rate     Dollars     (C)  
Hedged
                                                       
9N (E)
  27-Jul-93   27-Jul-13     300,000,000     USD     7.250       299,850,000       170,080,906  
8V (E)
  15-Mar-86   15-Mar-16     150,000,000     USD     8.875       205,725,000       120,788,068  
9B (E)
  01-Feb-89   01-Feb-19     200,000,000     USD     9.500       198,000,000       79,206,136  
9C (E)
  01-Jul-89   01-Jul-19     200,000,000     USD     8.875       199,900,000       74,257,947  
9D (E)
  15-Nov-89   15-Nov-19     244,000,000     USD     8.250       246,318,000       164,184,849  
9E (E)
  01-Mar-90   01-Mar-20     300,000,000     USD     9.250       409,200,000       159,403,097  
9J (E)
  01-May-91   01-May-21     300,000,000     USD     9.125       312,002,107       100,660,908  
9L (E)
  01-Apr-92   01-Apr-22     300,000,000     USD     8.750       379,516,788       108,387,576  
9M (E)
  30-Jul-92   30-Jul-22     300,000,000     USD     8.250       329,310,000       98,141,914  
B4 (D)(E)
  26-Feb-02   27-Feb-12     500,000,000     USD     5.750       795,000,000          
D1 (D)(E)
  26-Jan-07   26-Jan-17     500,000,000     USD     5.125       586,500,000          
 
                                                   
 
                    3,294,000,000                       3,961,321,894     $ 1,075,111,402  
 
                                                 
 
                                                       
Adjustments relating to swap agreements             (3,294,000,000 )                     (3,961,321,894 )        
 
                                                   
 
                                                       
Total Payable in USD:
                                                 
 
                                                       
LONG TERM TOTAL
                                          $ 10,653,378,620     $ 1,875,692,366  
 
                                                   

68


 

TABLE 1 — STATEMENT OF DEBENTURES OUTSTANDING AS AT MARCH 31, 2008
Short Term Promissory Notes
                                                         
    Date     Maturity     Amount                     Canadian     Sinking Funds  
Series   Of Issue     Date     Outstanding             Rate     Dollars     (C)  
P85 (D)(F)
  19-Feb-07   19-Aug-08     20,000,000     CAD   Step-Up   $ 20,000,000          
P86 (D)(F)
  01-Oct-07   01-Apr-08     35,000,000     CAD   Step-Up     35,000,000          
P87 (D)(F)
  08-Oct-06   08-Apr-08     55,000,000     CAD   Step-Up     55,000,000          
P90 (D)(F)
  10-Feb-07   10-Aug-08     30,000,000     CAD   Step-Up     30,000,000          
P91 (D)(F)
  01-Feb-07   01-Aug-08     20,000,000     CAD   Step-Up     20,000,000          
P92 (D)(F)
  17-Feb-07   17-Aug-08     50,000,000     CAD   Step-Up     50,000,000          
P93 (D)(F)
  25-Nov-06   25-May-08     35,000,000     CAD   Step-Up     35,000,000          
P94 (D)(F)
  02-Dec-06   02-Jun-08     25,000,000     CAD   Step-Up     25,000,000          
P95 (D)(F)
  22-Dec-06   22-Jun-08     30,000,000     CAD   Step-Up     30,000,000          
P96 (D)(F)
  22-Nov-06   22-May-08     30,000,000     CAD   Step-Up     30,000,000          
P97 (D)(F)
  22-Nov-06   22-May-08     25,000,000     CAD   Step-Up     25,000,000          
P98 (D)(F)
  22-Dec-06   22-Jun-08     25,000,000     CAD   Step-Up     25,000,000          
P99 (D)(F)
  28-Feb-07   28-Aug-08     20,000,000     CAD   Step-Up     20,000,000          
P100 (D)(F)
  01-Nov-06   01-May-08     20,000,000     CAD   Step-Up     20,000,000          
P101 (D)(F)
  21-Dec-06   01-Jun-08     15,000,000     CAD   Step-Up     15,000,000          
P104 (D)(F)
  15-May-07   15-May-08     20,000,000     CAD   Step-Up     20,000,000          
 
                                                   
 
                                                       
 
                  $ 455,000,000                     $ 455,000,000     $ 0  
 
                                                   
 
SHORT TERM TOTAL
                                            455,000,000       0  
 
                                                     
GRAND TOTAL
                                          $ 11,108,378,620     $ 1,875,692,366  
 
                                                   
 
(A)   Debentures held by the Canada Pension Plan Fund are payable up to 30 years after their respective dated of issue, are not negotiable, not transferable or assignable, but are redeemable in whole or in part before maturity at the option of the Minister of Finance of Canada, on six months’ prior notice when he deems it necessary in order to meet the requirements of the Canada Pension Plan.
 
(B)   Debenture issue to be retired through annual principal payments.
 
(C)   For designated sinking funds, payments normally commence on the first anniversary date of the issue of the debenture and are designed to retire the debt over the term of the issue. Sinking Fund investments consist primarily of debentures of the Province of Nova Scotia, other provincial governments and the Government of Canada.
 
(D)   The Province has executed swap contracts to convert certain interest payments from a fixed to floating for the fiscal year ended March 31, 2008.
 
(E)   The Province has executed currency swap contracts to convert foreign denominated debt into Canadian denominated debt.
 
(F)   Consists of numerous short-term promissory notes totaling $455 million, extendible in whole but not in part, on the initial extendible date and on each extendible date thereafter, on 15 days notice, at the option of the Province.
 
(G)   Consists of one $35 million in mid-term promissory notes, redeemable in whole but not in part, on the initial redemption date and, on each redemption date thereafter, on 15 days notice, at the option of the Province.

69