Tuesday, October 09, 2007

Edmonton Chamber of Commerce Takes a Position on the Alberta Royalty Review Report.

Edmonton Chamber of Commerce has taken a public position on resource royalties, and I like it. They step up to the plate and into the fray.

It takes the conservative position by asking the government of Alberta to “verify” the Review Panel’s findings on the potential economic impacts of their recommendations. Since the data used was all supplied by the government and the personnel and consultant data was all from government sources or those previously used by the government, verification should not be a problem.

Next the Edmonton Chamber confirms and agrees with the “Our Fair Share” Royalty Review goal of a simplified and very specific royalty framework. The energy industry in Alberta is changing and has many aspects from conventional oil and gas, to oil sands to coal bed methane. One royalty regime will not fit all but that does not mean the systems cannot be simplified.

They next ask for a staged and measured approach to rate changes and to provide more certainty to say the new rates will have a commitment for a certain period of time. That is a safety valve for some aspects of the industry to adapt, like the conventional gas sector for instance. The stated commitment of time for the rates before another review is a bit unrealistic but one can understand the motivation. On one side certainty for no change in rates for say 10 years will help industry with certainty. On the other hand we are in a market-based commodity reality where prices can drop as much and as often as the rise. In the 80’s under Premier Getty we actually say lots or rate cuts and holidays due to low commodity prices. So it may be a better model to have a formula that ties reviews to prices in case they drop but keep the severance tax in case they rise.

The last request of the Edmonton Chamber is the simple yet eloquent kicker! “Respond to any lapses in stewardship of the resources.” That is the elephant in the room for government and it goes to the heart of the Auditor General’s Report. This is not business telling government how to do its “business.” But it is saying they better attend to the business of government – especially the stewardship aspects – much better. LOVE IT!

The brilliance of the Edmonton Chamber’s position is that they also focus on what to do with the extra revenues the royalty increases will generate. They say cut taxes by 10% on the personal and 1% on corporate taxes. They are a Chamber of Commerce so this recommendation is to be expected. However, the Edmonton Chamber also says to use the additional money to “improve infrastructure” with a focus on high growth regions in the “northern extraction and processing regions.” That means the Wood Buffalo/Fort McMurray region that has been ignored for 10 years. It also means the Edmonton region, without serious co-ordinated regional planning around the various growth demands the new upgraders will cause, this city will turn into a new Fort McMurray - only this time the problems will be affecting ten times the population. It could be devastating.

Finally they push for some protection of the environment, again an idea contained in the Bill Hunter authored “Afterword” in the back of the “Our Fair Share” Royalty Review Report.

I have the odd quibble but overall I have to congratulate the good work and good ideas from the Edmonton Chamber of Commerce.