"I'm concerned about both sides here being protected," Judge Wayne Dymond of provincial Supreme Court said Wednesday in St. John's.
He issued an interim injunction that replaces a more restrictive order dated last Thursday as the matter heads to Supreme Court in Happy Valley-Goose Bay for more extensive hearings on Nov. 6 and 7.
The temporary order allows protesters to gather in the safety zone but restricts them from stopping or blocking vehicles entering the Muskrat Falls site.
Dymond's interim injunction also puts a 150-metre buffer zone around the site to keep protesters within the safety zone — a small parking lot to be created by Nalcor across from where the Caroline Brook Forestry Access Road turns off the Trans-Labrador Highway.
Use of explosives in the area raises safety concerns, he said.
Nalcor is building a road and camp site off the highway to be ready if the Newfoundland and Labrador government approves, as expected, a hydro megaproject that will top $6.2 billion.
The legislature is to debate Muskrat Falls later this year before a final decision by the ruling Progressive Conservatives.
Members of the NunatuKavut Community Council, representing Inuit-Metis from southern Labrador, have picketed against the project in recent weeks but say they never blocked access to the construction zone. The group is seeking a land deal with Ottawa. In the meantime, it says the province is unjustly excluding it from Muskrat Falls benefits as it impedes access to traditional native territory.
Last week's interim injunction had outlawed picketing anywhere near the construction site but has now been replaced by Dymond's ruling.
"We're pleased that the court recognized that the original order Nalcor obtained was far too broad and was infringing on our clients' rights," lawyer Derek Simon, representing NunatuKavut, said outside court.
"Obviously our client would prefer to see the order lifted altogether, but it has been curtailed so that's a step in the right direction.
"We'll see how it's constructed and whether it allows our clients to engage in their rights of peaceful protest and assembly," Simon said of the safety zone.
He said protesters never obstructed vehicles at the site.
"People stopped and they engaged in an information picket. They were distributing leaflets."
Gilbert Bennett, vice-president of Nalcor responsible for hydro development on the lower Churchill River in Labrador, said the ruling allows safe protest without impeding construction.
He said Nalcor is already working on permits to build the safety zone which will measure "several 10s of metres" and will resemble a small parking lot or lane adjacent to the Trans-Labrador Highway.
Bennett said costs had not been finalized but that he didn't expect them to be major, especially when compared to the price of delays.
"We have three contractors onsite today," he said outside court. "We have about 130 people working there so if you think about the labour, the contractor time, the heavy equipment time, all of our overhead, those are several hundred thousand dollars a day that would be expended onsite.
"Interrupting the work would still see the expenses continue to escalate on our side."
Court documents submitted by Nalcor say costs for the preliminary Muskrat Falls work are about $435,000 per day.
"A failure to complete construction of the access road before mid-November will jeopardize Nalcor's ability to award the first major construction contract after sanction until the spring of 2013, and will result in a six-month schedule delay to the project," they say.
"For each month that the project is delayed, Nalcor will incur direct costs of approximately $4 (million) to $5 million related to corporate support, salaries, professional fees, third-party fees, travel, office and overhead, suspension or cancellation of vendor or supplier contracts, insurance and financing."
Critics of the Muskrat Falls project have raised alarms about the potential for cost overruns before the hydro dam and generating station are completed around 2017.