PLEASANT POINT – A financial dispute between the Passamaquoddy Tribe and an Oklahoma-based developer of a proposed liquefied natural gas facility on tribal land may lead to arbitration, officials on both sides said Tuesday.

Passamaquoddy officials say Quoddy Bay LLC owes the tribe $350,000 in lease payments dating back to last December.

Tribal Councilor Hilda Lewis said Tuesday that Donald Smith, president of Quoddy Bay LLC, and his son, Brian, who is project director of the proposed $500 million liquefied natural gas terminal at Split Rock, owed the tribe money. Lewis said as far as she was concerned, the Smiths have defaulted on the lease agreement with the tribe.

“As far as I know, there’s been no money put into the tribal council,” Lewis, who ran on an anti-LNG platform, said Tuesday.

Brian Smith said Tuesday that although his company was eager to pay the reservation, it could not until Pleasant Point fulfilled its obligations under the terms of the lease agreement the two signed last year. Smith said the tribe has thus far failed to complete necessary tax agreements as stipulated in the lease.

Pleasant Point Gov. Mark Altvater, who was on his way to Oklahoma on Tuesday to meet with the developers, said it was not appropriate for him to comment.

Last year the Passamaquoddy Tribe at Pleasant Point and Quoddy Bay entered into a land-lease agreement which said that the company, in lieu of taxes, would pay the tribe about $12 million annually in lease payments depending on the average annual volume of LNG put through the facility. The Bureau of Indian Affairs approved the lease agreement in June 2005. The company hopes to build a facility at Split Rock on reservation land, with a storage tank farm in neighboring Perry.

Tribal attorney Craig Francis said Tuesday that the issue was twofold. “There is a disagreement between Quoddy Bay and the reservation on the timing of lease payments to the reservation and the reimbursement of professional fees,” he said. “The tribe believes Quoddy Bay owes them money right now. Quoddy Bay doesn’t feel like it owes the tribe money.”

At issue is how the lease agreement is being interpreted. “That is one of the issues that’s called into question,” Francis said. “We read the lease differently than they do.”

Francis said the reservation, under the terms of the agreement, has invoked its right to go to arbitration. But Smith said that the lease agreement allows for either side to initiate the dispute resolution provision. “[The provision] starts off with a couple months of meetings to try to resolve the dispute and actually those meetings are starting this week,” Smith said.

At the heart of the matter is the interpretation of the lease agreement. The developers, the tribal attorney said, were offered concessions, and in return the tribe was to be paid upfront money. “Ordinarily, they would pay taxes in any other kind of forum,” he said.

Francis said he believes that the upfront fees were to begin Dec. 1, 2005. He also said that once the permitting process at the federal level began – which he says has started – the reservation was to be paid quarterly. Francis said none of the fees have been paid to date.

Right now Quoddy Bay LLC is in the process of submitting documents to the Federal Energy Regulatory Commission. The agency is responsible for permitting LNG projects.

In addition to the dispute over when the developer should begin payment, Francis said, Quoddy Bay also hasn’t paid fees to the tribe to hire professionals to review the documents submitted thus far to FERC.

“The reservation also disagrees with Quoddy Bay for not reimbursing the tribe for professional fees,” Francis said. “During the FERC permitting period to date, which they are in, the reservation is supposed to be reviewing all of the resource studies that Quoddy Bay is submitting and Quoddy Bay agreed to reimburse the reservation for professional fees, be it an attorney or a consultant to give them advice on the content of the resource studies. They aren’t even doing that,” Francis said.

Smith rejected Francis’ arguments and said his company was abiding by the terms of the lease.

He said the reservation had to resolve some internal tribal matters before payments could be made. It all has to do with the “Project Coordination and Tax Agreement” that the Joint Tribal Council turned down earlier this year, Smith said.

The Passamaquoddy Tribe is divided into two reservations – the one at Pleasant Point near Eastport and the Indian Township Reservation near Princeton. The Joint Tribal Council is made up of tribal governors and councilors from both reservations.

The agreement was presented to the council earlier this year. In 1996, the council approved a resolution that allowed each reservation to pursue economic development; however, the resolution did not address the issue of assessment of taxes.

Had it been approved, the three-page agreement would have exempted the developer from all real estate and personal property taxes. It also would have allowed the Pleasant Point reservation to reduce the Tribal Employment Rights Ordinance Tax it can impose on a construction project from 3 percent to 1 percent and would allow the tribe to collect that tax on the bricks-and-mortar part of the project.

A TERO tax is not unusual on Indian reservations.

When that agreement was presented to the council, the leaders from Indian Township, along with one councilor from Pleasant Point, refused to sign it.

The majority members of the Indian Township tribal council said that although they might not have a say over actual construction on their sister reservation, they did have a say over the taxable part of the agreement.

And Indian Township has its own plans for LNG. Last year the Indian Township reservation entered into an agreement with Cianbro Corp. of Pittsfield. Neither side would elaborate on the terms of the agreement, but Indian Township wants to build its own LNG facility in Calais.

Smith said that without the “Project Coordination and Tax Agreement,” payments can’t be made. “There is a very clear outline in the lease agreement that provides that the reservation is responsible for getting that [agreement] signed before the vast majority of lease payments are made to the reservation,” Smith said.

He said his company was willing to help Pleasant Point reach an agreement with Indian Township, but viewed the issue as an internal tribal matter. “We are very anxious to make these lease payments. The money is literally sitting in a bank waiting to be paid as soon as that tax agreement is signed,” he added.

Smith denied Francis’ assertion that his company was at the “permitting period commencement date” with FERC. “It is at the permitting period commencement date that we are required to start lease payments, which by the way accrue, so it’s not as if those lease payments are just never paid. They just keep accruing until those conditions [including the council tax agreement] are met for that commencement date to begin,” Smith said.

Addressing the question of professional fees, Smith said that so far no one has asked for the money. And, he added, only one resource report has been submitted to FERC to date and that was in draft form. “We have not been asked at all to have anybody review these resource reports on behalf of the tribe,” he said.

And it’s not as if the company hasn’t fulfilled its obligations, Smith said. More than $300,000 already has been paid to the reservation to offset earlier legal fees to review things like the lease agreement. “So it’s not as if we haven’t been reimbursing the tribe for its outside expenses,” he said.

But Francis rejected Smith’s arguments. “It is obvious that there still exists a difference in interpretation of the lease as to when the tribe is to be paid and we are actively trying to resolve this dispute,” the tribal attorney said.