ST. JOHN'S, Newfoundland — When the federal budget was tabled on March 19, Premier Danny Williams immediately called it a "betrayal" of Newfoundland and Labrador.

Everyone remembered the Gander "goose egg" pledge, when he vowed to wipe out the federal Conservatives in the province if they didn't deliver on their equalization promise. But the premier was initially coy about how he was going to follow through.

"My solution is to get rid of Harper," Williams said. "That's my solution. My goal is to see that he certainly is not elected."

Nine days later, the country found out. A full-page ad appeared in major newspapers across Canada, accusing Prime Minister Stephen Harper of breaking his promise, and warning voters that if he did it to Newfoundland and Labrador, he could do it to any province.

The federal government was quick to call the ad untrue.

"Under the budget, Newfoundland and Labrador is getting 100 per cent of what it was promised in the Atlantic Accord without a cap," Harper told the House of Commons. "What we are seeing is confrontation for the sake of confrontation."

The complexion of this fight is already different from the last battle over the Atlantic Accord in 2004-05. The federal Conservatives are showing a willingness to hit back at Williams harder than the Liberals did last time.

For Newfoundland and Labrador's Tories, this isn't just a battle. It's turning into a civil war.

Promise made, promise kept?

During the 2006 federal election, Williams wrote the leaders of the three major parties, asking for their positions on a variety of federal-provincial issues. This was Harper's reply on equalization: "We will remove non-renewable natural resource revenues from the equalization formula to encourage the development of economic growth in the non-renewable resource sectors across Canada."

What the Conservatives delivered in the federal budget was more complex than that. After months of talks the premiers had failed to reach a consensus on equalization, so Ottawa gave them a choice.

In the case of Nova Scotia and Newfoundland and Labrador, they could stick with their Atlantic Accords, with 100 per cent of oil and gas revenues sheltered from equalization clawback and no cap on payments once they reach Ontario's fiscal capacity. Or they could opt for the new formula with 50 per cent of all non-renewable resource revenues sheltered, but with a cap.

In the words of Harper, "promise made, promise kept."

Williams disagrees.

"That's the spin that the federal governments are going to put on it," he says. "The status quo is fine and that's the Atlantic Accord and that's what you've got. But that's not what we were promised."

The premier says a literal application of Harper's promise would have excluded all non-renewable resource revenues from the equalization calculations, and that would have done two things,

One, on top of the protection for oil and gas in the Atlantic Accord, nickel revenues from Voisey's Bay and iron ore revenues from Labrador West would also have been sheltered from equalization clawback.

Two, those revenues would have been sheltered forever, not just until the accord expires in 2012 or 2020.

The premier says it was an "enhanced" commitment.

But that commitment was completely out of step with the proposals for uniformity and equity outlined in a report last summer by an expert panel on equalization.

Harper may have promised the moon. Williams wants it delivered yesterday.

Conflicting opinions

On the provincial level, the general consensus has been that the promise was broken, but not everyone agrees that it's worth a fight.

The St. John's Board of Trade firmly agrees with the premier's position.

"The budget certainly does contain some positive steps in some areas, but those are certainly overshadowed by the implications with regard to the prime minister's broken promise," board president Cathy Bennett told NTV News.

But economist Wade Locke, who teaches at Memorial University, told NTV the numbers need to be crunched before any conclusions are drawn.

"The problem is, no matter what you do if you're the federal government, you're going to hurt somebody and help somebody," he says. "It's just a zero-sum game. ... I thought it was a clever way of doing it, and so long as you accept certain principles, then it seems reasonable."

The economic effects on the province are still unknown. The provincial government is calculating to see if it will get more money by sticking with the old formula or switching to the new formula. The premier says there may or may not be a decision by budget day on April 26, because once the province opts in to the new formula, there is no going back.

Ottawa's compromise

The federal Conservatives are adamant that they kept their promise, although the way they frame it is different. They say Harper's promise was made to all provinces, not just Newfoundland and Labrador, and it became clear last summer that not all premiers wanted that promise kept.

So Ottawa presented a compromise, giving one formula to provinces that did not have offshore accords and another formula to provinces that did.

"What should be happening here in our province and is not happening because of all this fighting and the sideshows, we could be a have province," says federal fisheries minister Loyola Hearn. "We shouldn't even be talking about equalization. We should be there, ready and willing to participate as an equal partner in Canada."

The federal government is not taking the ad campaign lying down, either.

On March 29, the Conservative MP for Avalon, Fabian Manning, was allowed to speak during question period in the House of Commons. Manning used to be a member of the provincial legislature and was kicked out of the Tory caucus in 2005 when he publicly opposed the premier on fisheries policy.

"Our government has kept its commitment to honour and respect the Atlantic Accord," he said. "We are delivering 100 per cent of what the accord promised, not 50 per cent, and without a cap. Unfortunately, Premier Williams does not share our commitment to a strong economy and wants to pick a fight instead. Would the Minister of Natural Resources explain the damage that Premier Williams is causing the people of Newfoundland and Labrador?"

Natural Resources Minister Gary Lunn replied: "Premier Williams is playing a very dangerous game with the economy for the people of Newfoundland and Labrador. This year alone, Newfoundland and Labrador will receive over a half a billion dollars in royalties from offshore resources, but his reckless actions are not improving things like the South Hibernia expansion."

About a year ago, talks broke off between the provincial government and a consortium of oil companies to develop Hebron, the province's fourth offshore oilfield. The premier demanded increased royalties and an ownership stake for the province. The consortium came back with demands for tax breaks. The negotiations fell apart in acrimony.

The local offshore industry considers Hebron to be of vital importance. While the province has three producing oilfields, there have been no new discoveries in recent years, and the industry needs a new development to bridge the gap until the current round of exploration bears fruit.

"(Our) position has been that we need continuity in our projects," says Ted Howell, president of the Newfoundland Ocean Industries Association, told NTV.

"We need one project coming after another where we can have a full-cycle industry. We need to have a continuous flow of activity in all phases - exploration, development and production - then we will have a true industry and we will derive the greatest long-term benefits from the industry."

The provincial Liberals argue that the premier's confrontational attitude with "Big Oil" is stalling economic development in the province and driving working people to Alberta, where activity is happening.

The federal Conservatives are now parroting that position, telling the premier if he wants to save the province's economy, he shouldn't be asking Ottawa for more equalization money, he should be getting development moving in the oil industry.

Strange bedfellows

So now Newfoundland and Labrador finds itself in a position where Tories are attacking Tories and Liberals are picking sides of convenience.

"This is why they say politics makes strange bedfellows," says Michael Temelini, a political science professor at Memorial University.

"There are two things that are going on here: it's partly based on a personality clash and old battles that are being rehashed, and part of it is ideological,"  he told NTV.

Ever since Williams took the reins of the Progressive Conservative party in 2001, every poll has given him a big lead over the Liberals. There may or may not be a federal election this spring; there will definitely be a provincial election in the fall. But Williams isn't really running against the Liberals, he's running against Ottawa, and unlike last time, Ottawa is sending signals that it is running against Williams.

Asked what that will do to the next campaign, Temelini smiles and laughs nervously.

"Well, I'm not going to predict anything after what I saw this week," he says. "It's going to be interesting, that's all I can say."