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Annex - Financial Statements

The Department has prepared financial statements in accordance with the Treasury Board Accounting Standard.

• Statements for the Geomatics Canada Revolving Fund have been posted on the following web site: http://www.nrcan.gc.ca/css/fmb/fmb-e.htm¹.
• Statements for Natural Resources Canada can be found on the following pages.

¹An electronic link to the revolving fund financial statements is sufficient for the DPR given that the statements are included in the Public Accounts which are tabled in Parliament before the DPR.

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Natural Resources Canada

Statement of Management Responsibility

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2007 and all information contained in these statements rests with departmental management. These statements have been prepared by management in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector.

Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgments and gives due consideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of the department's financial transactions. Financial information submitted to the Public Accounts of Canada and included in the department's Departmental Performance Report is consistent with these financial statements.

Management maintains a system of financial management and internal control designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are in accordance with the Financial Administration Act, are executed in accordance with prescribed regulations, within Parliamentary authorities, and are properly recorded to maintain accountability of Government funds. Management also seeks to ensure the objectivity and integrity of data in its financial statements by careful selection, training and development of qualified staff, by organizational arrangements that provide appropriate divisions of responsibility, and by communication programs aimed at ensuring that regulations, policies, standards and managerial authorities are understood throughout the department.

The mandate of the Audit and Evaluation Committee of Natural Resources Canada (NRCan), is to review and provide advice to the Deputy Minister on: NRCan Audit and Evaluation Policies; NRCan Annual Internal Audit and Evaluation Plans, Internal Audit, Evaluation and Special Review Reports, including management responses and commitments to implement remedial action; and the implementation in NRCan of the October, 2005 Treasury Board Policy on Internal Audit.

The financial statements of the department have not been audited.

original signed by M. McCuaig-Johnston acting for Cassie J. Doyle Deputy Minister Date signed Ottawa Canada

original signed by Richard S. Tobin Senior Financial Officer Date signed Ottawa Canada

Natural Resources Canada
Statement of Operations (unaudited)
For the year ended March 31, 2007
(in thousands of dollars)

	2007	2006
Expenses (Note 4)
Energy	1,273,151	1,087,505
Earth Sciences	339,872	259,524
Forest	218,918	169,344
Mineral and Metals	118,442	88,636
Total expenses	1,950,383	1,605,009
Revenues (Note 5)
Energy	$465,050	$566,722
Earth Sciences	16,466	22,782
Mineral and Metals	8,142	7,990
Forest	2,493	2,777
Total revenues	492,151	600,271
Net cost of operations	1,458,232	1,004,738

The accompanying notes form an integral part of these financial statements.

Natural Resources Canada
Statement of Financial Position (unaudited)
As at March 31, 2007
(in thousands of dollars)

	2007	2006
ASSETS
Financial assets
Accounts receivable and advances (Note 6)	14,985	15,036
Loans receivable (Note 7)	95,555	101,536
Investment (Note 8)	164,159	164,159
Total financial assets	274,699	280,731
Non-financial assets
Prepayments (Note 9)	8,671	12,479
Inventories	10,978	13,151
Tangible capital assets (Note 10)	81,367	87,203
Total non-financial assets	101,016	112,833
Total assets	375,715	393,564
LIABILITIES
Accounts payable and accrued liabilities	431,097	$358,365
Vacation pay and compensatory leave	25,818	26,184
Employee severance benefits (Note 11)	64,858	64,894
Environmental liabilities (Note 14)	387,793	192,148
Capital lease obligations		0
Other liabilities (Note 12)	32,426	26,969
Total liabilities	941,992	668,560
Equity of Canada	(566,277)	(274,996)
Total	375,715	393,564
Contractual Obligations (Note 15)

The accompanying notes form an integral part of these financial statements.

Natural Resources Canada
Statement of Equity of Canada (unaudited)
For the year ended March 31, 2007
(in thousands of dollars)

	2007	2006
Equity of Canada, beginning of year	(274,996)	(397,672)
Net cost of operations	(1,458,232)	(1,004,738)
Current year appropriations used (Note 3)	1,685,732	1,680,002
Revenue not available for spending	(451,906)	(554,869)
Change in net position in the Consolidated Revenue Fund (Note 3)	(106,931)	(40,724)
Services received without charge from other government departments (Note 16)	40,054	43,005
Equity of Canada, end of year	(566,277)	(274,996)

The accompanying notes form an integral part of these financial statements.

Natural Resources Canada
Statement of Cash Flow (unaudited)
For the year ended March 31, 2007
(in thousands of dollars)

	2007	2006
Operating activities
Net cost of operations	1,458,232	1,004,738
Non-cash items:
Amortization of tangible capital assets	(15,465)	(17,728)
Gain (loss) on disposal of tangible capital assets	(62)	(19)
Services provided without charge	(40,054)	(43,005)
Adjustment to tangible capital assets		334
Variations in Statement of financial position
Decrease (increase) in liabilities	(273,433)	139,171
Increase (decrease) in assets other than tangible capital assets	(12,014)	(11,194)
Cash used by operating activities	1,117,204	1,072,297
Capital investment activities
Acquisitions of tangible capital assets	9,995	12,367
Proceeds from disposal of tangible capital assets	(304)	(255)
Cash used by capital investment activities	9,691	12,112
Financing activities
Net cash provided by Government of Canada	(1,126,895)	(1,084,409)

The accompanying notes form an integral part of these financial statements.

Natural Resources Canada
Notes to the Financial Statements (unaudited)
For the year ended March 31, 2007

1. Authority and Objectives

The Department of Natural Resources Canada (NRCan) was created on June 25, 1993 by the merger of the Department of Energy, Mines and Resources and the Department of Forestry. This organizational change was effected by Order in Council, pending the passage of legislation which occurred in 1994. The Department's mandate is primarily based on the Department of Natural Resources Act, the Resources and Technical Surveys Act and the Forestry Act.

NRCan's mandate is to ensure the sustainable development and responsible use of Canada's natural resources. Through innovation and partnership, the department plays a pivotal role in helping shape the enormous contributions of the natural resource sectors and related industries to the high quality of life of Canadians. NRCan fulfills its mandate through four main programs:

• The Energy Sectors connect Canadians with the latest information about smarter energy use, sources of energy and energy policy.
• The Earth Sciences Sector provides expertise to access, understand, and use Earth science information to deal with economic, environmental, and social changes. The sector collects studies and shares in disciplines such as geology, geomatics and paleontology to promote the sustainable use of Canada's natural resources.
• The Canadian Forest Service promotes the development of Canada's forests and the competitiveness of the Canadian forest sector, helping Canadians make sound decisions on the stewardship of our forests.
• The Minerals and Metals Sector is the federal government's primary source of scientific and technological knowledge and policy advice on Canada's mineral and metal resources and on explosives regulation and technology. The sector engages in innovative research and technology on Canada's mineral and metal resources, promoting their responsible development and use.

This mandate is delivered by the Department's 4,456 full time employees located in offices across Canada.

2. Summary of Significant Accounting Policies

The financial statements have been prepared in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector.

Significant accounting policies are as follows:

1. Parliamentary Appropriations - NRCan is financed by the Government of Canada through Parliamentary appropriations. Appropriations provided to NRCan do not parallel financial reporting according to generally accepted accounting principles since appropriations are primarily based on cash flow requirements. Consequently, items recognized in the statement of operations and the statements of financial position are not necessarily the same as those provided through appropriations from Parliament. The Note 3 provides a high-level reconciliation between the bases of reporting.
2. Consolidation - these financial statements include the accounts of the following sub-entity of NRCan: the Geomatics Canada Revolving Fund. The accounts of the Geomatics Canada Revolving Fund have been consolidated with those of NRCan. NRCan also records an investment in Atomic Energy of Canada Limited (AECL) that is recorded at cost. The results of AECL are not consolidated in these financial statements due to the fact that NRCan is not deemed to control the Crown Corporation.
3. Net Cash Provided by Government - NRCan operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by NRCan is deposited to the CRF and all cash disbursements made by NRCan are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions with other departments of the federal Government made by NRCan during the year.
4. Change in net position in the Consolidated Revenue Fund is the difference between the net cash provided by Government and appropriations used in a year, excluding the amount of non respendable revenue recorded by NRCan. It results from timing differences between when a transaction affects appropriations and when it is processed through the CRF.
5. Revenues:
   • Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
   • Other revenues are accounted for in the period in which the underlying transaction or event occurred that gave rise to the revenues.
   • Return on investment in Crown Corporation is recognized in the period in which the income is received.
6. Expenses - Expenses are recorded on the accrual basis:
   • Grants are recognized in the year in which the conditions for payment are met. In the case of grants which do not form part of an existing program, the expense is recognized when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements;
   • Contributions are recognized in the year in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement;
   • Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment; and
   • Services provided without charge by other government departments for accommodation, the employer's contribution to the health and dental insurance plans, workers compensation, and legal services are recorded as operating expenses at their estimated cost.
7. Employee future benefits
   1. Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer plan administered by the government of Canada. NRCan's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. Current legislation does not require the department to make contributions for any actuarial deficiencies to the Plan.
   2. Severance benefits: Employees are entitled to severance benefits under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary to earn them. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability employee severance benefits for the Government as a whole.
8. Accounts receivables are stated at amounts expected to be ultimately realized; a provision is made for receivables where recovery is considered uncertain.
9. Loans with significant concessionary terms are recorded on the Statement of Financial Position at their estimated net present value. A portion of this unamortized discount is brought into income each year to reflect the change in the present value of the loan outstanding. An estimated allowance for uncollectibility is recorded where appropriate.
10. Repayable contributions are contributions where the recipient is expected to repay the amount advanced. Depending on their nature, they are classified as either unconditionally repayable or conditionally repayable and are accounted for differently.
    1. Unconditionally repayable contributions are contributions that must be repaid without qualification. Normally, these contributions are provided with a low or no interest clause. They are in substance loans with significant concessionary terms and accounted for as such. They are recorded on the statement of financial position as loans at their estimated present value. A portion of this unamortized discount is brought into income each year to reflect the change in the present value of the contributions outstanding. An estimated allowance for un-collectibility is also recorded where appropriate.
    2. Conditionally repayable contributions are contributions that, all or part of which become repayable, if conditions specified in the contribution agreement come into effect. Accordingly, they are not recorded on the Statement of Financial Position until such time as the conditions specified in the agreement are satisfied at which time they are then recorded as a receivable and a reduction in transfer payment expenses. An estimated allowance for un-collectibility is recorded where appropriate.
11. Contingent liabilities - Contingent liabilities are potential liabilities which may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.
12. Environmental liabilities - Environmental liabilities reflect the estimated costs related to the management and remediation of environmentally contaminated sites. Based on management's best estimates, a liability is accrued and an expense recorded when the contamination occurs or when the department becomes aware of the contamination and is obligated, or likely to be obligated to incur such costs. If the likelihood of NRCan's obligation to incur these costs is not determinable, or if an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes of the financial statements.
13. Inventories - Inventories consist of parts, material and supplies held for future program delivery and not intended for re-sale. They are valued at cost. If they no longer have service potential, they are valued at the lower of cost or net realizable value.
14. Foreign currency transactions - Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates of exchange in effect at the time of those transactions. Monetary assets and liabilities denominated in a foreign currency are translated into Canadian dollars using the rate of exchange in effect on March 31. Gains and losses resulting from foreign currency transactions are included in the statement of operations.
15. Tangible capital assets - All tangible capital assets and leasehold improvements having an initial cost of $10,000.00 or more ($1,000.00 or more for the Revolving Fund) are recorded at their acquisition cost. The department does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves and museum collections.

    Amortization of capital assets is done on a straight-line basis over the estimated useful life of the capital asset as follows:

    
    

    Asset Class	Amortization period
    Buildings	15 to 40 years
    Machinery and equipment	1 to 25 year
    Vehicles	3 to 20 years

    
    
16. Measurement uncertainty - The preparation of financial statements in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, environmental liabilities, the liability for employee severance benefits and the useful life of tangible capital assets. Actual results could significantly differ from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3. Parliamentary Appropriations

The department receives most of its funding through annual Parliamentary appropriations. Items recognized in the statement of operations and the statement of financial position in one year may be funded through Parliamentary appropriations in prior, current or future years. Accordingly, the Department has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables:

a) Reconciliation of net cost of operations to current year appropriations used

	2007	2006
	(in thousands of dollars)
Net cost of operations	1,458,232	1,004,738
Adjustments for items affecting net cost of operations but not affecting Appropriations:
Add (Less):
NRCan's appropriations
Service provided without charge	(40,054)	(43,005)
Amortization of tangible capital assets	(15,465)	(17,728)
Amortization of unamortized discount loans	8,219	6,330
Payments to Department of Justice	(1,319)	(1,612)
Revenue not available for spending	451,906	554,869
Vacation Pay and Compensatory Leave	365	(1,237)
Adjustments of previous years Inventory	(2,174)	(1,982)
Adjustments of previous years Accounts Payable	4,130	7,017
Refunds of prior years expenditures	11,927	2,880
Allowance for Environmental Liabilities	(195,645)	8,534
Refunds of Program Expenditures	9,266	-
Employee severance benefits	36	(6,405)
Other adjustments	(57)	143
	231,135	507,804
Adjustments for items not affecting net cost of operations but affecting Appropriations
Add:
Receivables, Advances, and Prepayments	1,464	5,093
Acquisitions of tangible capital assets	126	12,367
Reductions from prepaid expenses	(5,225)	-
Expenses to Federation of Canadian Municipalities	-	150,000
	(3,635)	167,460
Current year appropriations used	1,685,732	1,680,002

b) Appropriations provided and used

	Appropriations Provided
	2007	2006
	(in thousands of dollars)
Vote 1 - Operating expenditures	662,547	617,108
Vote 5 - Capital expenditures	3,711	7,701
Vote 10 - Transfer payments	289,501	297,989
Statutory amounts	782,340	885,543
Less:
Appropriations available for future years	(14,305)	(13,698)
Lapsed appropriations - Operating	(21,786)	(25,524)
Lapsed appropriations - Capital	(562)	(2,003)
Lapsed appropriations - Transfer payment	(15,714)	(87,114)
Current year appropriations used	1,685,732	1,680,002

c) Reconciliation of net cash provided by Government to current year appropriations used

	2007	2006
	(in thousands of dollars)
Net cash provided by Government	1,126,895	1,084,409
Revenue not available for spending	451,906	554,869
Change in net position in the Consolidated Revenue Fund
Variation in accounts receivable and advances	51	7,546
Variation in accounts payable and accrued liabilities	72,732	(141,092)
Other adjustments	34,148	174,270
	106,931	40,724
Current year appropriations used	1,685,732	1,680,002

4. Expenses

The following table presents details of expenses by category:

	2007	2006
	(in thousands of dollars)
Transfer payments
Other level of government	732,945	650,238
Industry	135,060	120,981
Non-profit organizations	61,141	67,297
Individuals	46,259	22,038
Other countries and international organizations	1,293	916
Total transfer payments	976,698	861,470
Operating expenses
Salary and employee benefits	432,901	441,807
Professional and special services	198,765	133,682
Allowance for environmental liabilities	195,645	8,534
Transportation and communication	35,269	38,945
Utilities, materials and supplies	23,817	23,378
Rentals	22,536	25,709
Acquisition of machine and equipment	21,437	27,574
Amortization	15,465	17,728
Information	8,476	17,201
Repairs and maintenance	7,828	8,685
Environmental studies research	2,538	2,510
Acquisition of land, building and work	1,092	2,955
Other	7,916	(5,169)
Total operating expenses	973,685	743,539
Total Expenses	1,950,383	1,605,009

5. Revenues

The following table presents details of revenues by category:

	2007	2006
	(in thousands of dollars)
Sales of goods and services - external parties:
Rights and privileges	396,052	453,375
Services of non-regulatory nature	22,120	26,430
Sales of goods and information products	5,646	8,685
Services of regulatory nature	1,312	957
Lease and use of public property	324	684
Other fees and charges	182	1,272
Interest	47,764	37,441
Amortization of discount loans	8,219	6,330
Fines	7,870	62,383
Environmental Research Fund	2,468	2,500
Return on investment - Other enterprise crown corporation	76	94
Gains on disposal of tangible capital assets	44	98
Other	74	22
Total	492,151	600,271

6. Accounts Receivable and Advances

The following presents details of accounts receivable and advances:

	2007	2006
	(in thousands of dollars)
Receivables from other federal government departments and agencies	9,240	5,775
Receivables from external parties	6,832	10,392
Less: Allowance for doubtful accounts on external receivables	(1,300)	(1,345)
	5,532	9,047
Employee advances	213	214
Total	14,985	15,036

7. Loans Receivable

	2007	2006
	(in thousands of dollars)
Loan to Hibernia Interest Assistance	39,978	39,978
Unamortized discount	(3,247)	(4,871)
Allowance for uncollectibility	(999)	(999)
Loan balance - Hibernia Interest	35,732	34,108
Loan to Nordion International Inc.	74,000	78,000
Unamortized discounts	(30,000)	(33,333)
Loan balance - Nordion	44,000	44,667
Loan to Hibernia Development Project	18,400	27,600
Unamortized discounts	(4,077)	(7,339)
Loan balance - Hibernia	14,323	20,261
Loan to Atomic Energy of Canada Limited	1,500	2,500
Total	95,555	101,536

Hibernia Interest Assistance Loan

Unconditional repayable contribution; interest free; first instalments paid on March 31, 2001. Repayment starts eight years from the first annual instalment; the first repayment date is March 1, 2009. Balance outstanding as of March 31, 2007 is $39,978,000. The estimated present value is $35,732,000 as at March 31, 2007.

Nordion International Inc. (loan)

Interest Free Loan Agreement; to be repaid over 30 semi-annual payments commencing October 1, 2000; fully secured by a financial instrument in Canada's name which guarantees that the loan will be repaid. Balance remaining as of March 31, 2007 is $74,000,000. Due to the concessionary terms of this loan, the estimated present value is $44,000,000 as at March 31, 2007.

Hibernia Development Project (loan)

Interest Free Loan Agreements; repayment in 10 consecutive equal annual instalments commencing June 30, 1999. Currently outstanding is Murphy Atlantic Offshore Oil Co. Ltd. $10,400,000 (estimated present value $8,100,000) and Mobile Canada Hibernia Co. Ltd $8,000,000 (estimated present value $6,200,000).

Loan to Atomic Energy of Canada (AECL)

Interest bearing loan at an average floating rate of 4.2570% (2006-2007); maturing September 2008. NRCan invoices AECL twice per year (May & November). As of March 31, 2007, balance for Heavy Water Inventory loan amounted to $1,500,000.

8. Investment

Investment in Atomic Energy Canada Limited (AECL)

NRCan has purchased common shares of Atomic Energy of Canada Limited, a Crown Corporation, for a total value of $164,159,000.

9. Prepayments

	2007	2006
	(in thousands of dollars)
Prepaid transfer payments	5,821	12,143
Prepaid expenses	2,850	336
Total	8,671	12,479

10. Tangible Capital Assets

(in thousands of dollars)

Cost					Accumulated amortization				2007	2006
Capital asset class	Opening balance	Acqui- sitions	Dispo- sals and write-offs	Closing balance	Opening balance	Amorti- zation	Dispo- sals and write-offs	Closing balance	Net book value	Net book value
Land	7,905			7,905				0	7,905	7,905
Buildings	141,782			141,782	102,819	5,684		108,503	33,279	38,963
Machinery and equipment	215,846	8,920	3,043	221,723	180,309	8,606	3,010	185,905	35,818	35,537
Vehicles	12,807	1,075	1,517	12,365	8,009	1,175	1,184	8,000	4,365	4,798
Total	378,340	9,995	4,560	383,775	291,137	15,465	4,194	302,408	81,367	87,203

Amortization expense for the year ended March 31, 2007 is $ 15,465 (2006 - $17,728).

11. Employee Benefits

1. Pension benefits: NRCan employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Quebec Pension Plans benefits and they are indexed to inflation.

   Both the employees and the department contribute to the cost of the plan. The 2006-07 expense amounts to $57,600,000 ($62,800,000 in 2005-06), which represents approximately 2.2 times (2.6 in 2005-06) the contributions by employees.

   The department's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

2. Severance benefits: The department provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future appropriations. Information about the severance benefits, measured as at March 31, is as follows:
   

   	2007	2006
   	(in thousands of dollars)
   Accrued benefit obligation, beginning of year	64,894	58,489
   Expense for the year	(30)	6,480
   Benefits paid during the year	(6)	(75)
   Accrued benefit obligation, end of year	64,858	64,894

   
   

12. Other Liabilities

(in thousands of dollars)	April 1, 2006	Receipts and other credits	Payments and other charges	March 31, 2007
Guarantee deposits - Oil and gas	11,571	703,862	(701,372)	14,061
Contractors security deposits	92		(92)
Shared costs projects	9,250	13,199	(11,284)	11,165
Market development and incentive payments - Alberta	4,778	4,798	(4,785)	4,791
Shared costs agreements - Research	1,278	7,099	(5,968)	2,409
Total	26,969	728,958	(723,501)	32,426

Guarantee deposits - Oil and gas: This account was established to record securities in the form of cash, promissory notes, and bonds which are required to be issued to, and held by the Government of Canada pursuant to an Exploration License in accordance with section 24 of the Canada Petroleum Resources Act. These securities are a performance guarantee that the agreed exploration will be performed in the manner and time frame specified. Interest is not paid on these deposits.

Shared cost projects - This account was established to facilitate the retention and disbursement of moneys received from private organizations and other governments for cost-sharing scientific projects.

Market development and incentive payments - Alberta: This account records money received from the Government of Alberta, to encourage the expansion of natural gas market in Alberta and provinces to the East, in accordance with an agreement between the Government of Canada and the Government of Alberta dated September 1, 1981 and pursuant to section 39 of the Energy Administration Act. The original term of the agreement was from November 1, 1981 to January 31, 1987. As a result of the Western Accord of March 25, 1985, payments from the Government of Alberta terminated as at April 30, 1986, however, payments are being made from the account for selected programs which encourage the use of natural gas for vehicles.

Shared cost agreements - Research: This account was established to facilitate the retention and disbursement of moneys received from private industries and other governments for joint projects or shared-cost research agreements.

13. Equity of Canada

NRCan includes in its revenues and expenses the transactions of certain consolidated accounts established for specified purposes. Legislation required that the revenues of these specified purpose accounts to be earmarked and that related payments and expenses be charged against such revenues. The transactions do not represent liabilities to third parties but are internally restricted for specified purposes. NRCan has one such account entitled Environmental Research Fund. This account was established pursuant to subsection 76(1) of the Canada Petroleum Resources Act. The purpose of the fund is to finance environmental and social studies pertaining to the manner in which, and the terms and conditions under which, exploration development and production activities on frontier land, authorized under this Act or any other Act of Parliament, should be conducted.

	2007	2006
Restricted - Environmental Studies Research Fund	(in thousands of dollars)
Opening balance	2,552	2,562
Revenues	2,468	2,500
Expenses	(2,538)	(2,510)
Closing balance	2,482	2,552
Unrestricted equity	(568,759)	(277,548)
Total equity of Canada	(566,277)	(274,996)

14. Contingent liabilities

1. Contaminated sites
   Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where the department is obligated or likely to be obligated to incur such costs. The department has identified approximately 11 sites (11 sites in 2006) where such action is possible and for which a liability of $387,800,000 ($192,100,000 in 2006) has been recorded. The significant increase in 2007 is primarily a result of the revised assessment of the cost estimate for one of the sites. NRCan's ongoing efforts to assess contaminated sites may result in additional environmental liabilities related to newly identified sites, or changes in the assessments or intended use of existing sites. These liabilities will be accrued by the department in the year in which they become known.
2. Claims and litigation
   Claims have been made against the department in the normal course of operations. Legal proceedings for claims totaling approximately $720,600,000 ($720,900,000 in 2006) were still pending at March 31, 2007. Some of these potential liabilities may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded in the financial statements.

15. Contractual Obligations

The nature of the department's activities can result in some large mutli-year contracts and obligations whereby the department will be obligated to make future payments when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

(in thousands of dollars)	2008	2009	2010	2011	2012 and thereafter	Total
Transfer Payments	26,700	28,600	28,600	28,600	136,900	249,400

16. Related party transactions

The department is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. The department enters into transactions with these entities in the normal Course of business and on normal trade terms. Also, during the year, the department received services which were obtained without charge from other Government departments as presented in part (a).

1. Services provided without charge:
   During the year the department received without charge from other departments, accommodations, legal fees and the employer's contribution to the health and dental insurance plans. These services received without charge are as follows:
   

   Services provided without charge	Amount (in thousands of dollars)
   	2007	2006
   Accommodation provided by Public Works and Government Services Canada	10,909	14,092
   Contributions covering employer's share of employees' insurance premiums and costs paid by Treasury Board Secretariat	27,455	27,132
   Worker's compensation cost provided by Human Resources Canada	252	297
   Legal services provided by Department of Justice	1,438	1,484
   Total	40,054	43,005

   
   

   The Government has structured some of its administrative activities for efficiency and cost-effectiveness purposes so that one department performs these on behalf of all without charge. The costs of these services, which include payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General, are not included as an expense in the department's Statement of Operations.

2. Payables and receivables outstanding at year-end with related parties:
   

   Payables and receivables outstanding at year-end with related parties:	Amount (in thousands of dollars)
   	2007	2006
   Accounts payable to other government departments and agencies	10,766	9,227

   
   

17. Comparative information

Comparative figures have been reclassified to conform to the current year's presentation.

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