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A heavy truck crosses the Kitimat River (Haisla Blvd) bridge Feb. 20, 2014. Kitimat mayor Joanne Monaghan says local governments may not have the financial wherewithal to provide the infrastructure necessary for LNG development.Robin Rowland/The Globe and Mail

The B.C. government is prepared to limit the power of local government to impose industrial taxes on new liquefied natural gas plants, setting the stage for a showdown over the independence of municipal authorities.

Rich Coleman, the minister responsible for the development of LNG, said cabinet is looking at establishing a cap on municipal industrial property taxes to provide certainty to proponents.

Kitimat Mayor Joanne Monaghan, whose community is expected to be at the centre of any LNG development, said the tactic could be devastating for local governments that have to bear the costs for providing the local infrastructure. "That's what we were afraid of," she said in an interview Monday.

There are a dozen proposed LNG facilities in the works for B.C., and the province is hoping to land final investment decisions for at least some of those projects by the end of this year.

But the province is still in talks with the proponents about the total regulatory package, and has yet to announce many of the cost components, such as environmental regulation and electricity rates. Last week, Finance Minister Mike de Jong announced a proposed income-tax framework for LNG but even those details are still subject to negotiation.

"It's complicated stuff," Mr. Coleman said in an interview Monday. He said local governments are already in line for "fair share" agreements that would allow them to benefit from the development of LNG.

"It's got to be balanced. We've always said we are not going to let that industrial tax rate get out of control like it did on pulp mills in some communities."

Mr. Coleman was referring to a campaign led by financially troubled Catalyst Paper that aimed to reduce municipal tax rates. The provincial government set up a series of committees and tax reviews to study the issue but ended in a stalemate with the Union of B.C. Municipalities over how to address the problem.

Now, the province is prepared to provide relief to its hoped-for LNG industry that it would not offer the pulp-and-paper sector. Mr. Coleman said he is prepared to set a ceiling for industrial property tax rate hikes.

"We did it with the ports, and that's what we are looking at doing here," he said.

In 2003, the B.C. government faced a tax revolt from port operators who complained that their host municipalities were taxing them out of competitiveness. In response, the province capped property-tax rates for tenants of port terminals. It then provided some compensation to the local governments for lost revenue. It is not clear that the province would be offering compensation in this case.

In Kitimat, the proposal was greeted with skepticism.

Ms. Monaghan said local governments need to retain their authority to set their own property-tax rates. "You don't to want to tax your industry outlandishly," she said, "but you have to keep the sidewalks and streets going."

It appears the province is ready to elbow municipal governments aside, she said, as it seeks to occupy most of the tax room that would be available in a B.C. LNG industry. She said the province has been slow to set its own tax regime in place, and is putting investment decisions at risk. "Why we are waiting so long is beyond me. You have so many other countries that want to cash in, we are in a race."

The province is expected to announce much of the LNG cost structure this spring, but the income-tax law will not be introduced until the fall.

Municipalities have virtually unfettered power to set property tax rates in B.C.

Catalyst Paper sought to provoke the provincial government to action but in the end, it was left to each municipality where the company does business to try to keep the industry afloat. In Powell River, local government agreed to slash its industrial tax rates to keep the mill in business. Campbell River did not budge, and the company shuttered its mill there.