I do not usually post news stories verbatim in this Blog. But in this case I wish to make an exception. If for not other reason that I am a Member of the C.D. Howe Institute (by way of disclosure) this piece brings forth some larger questions on the future of Alberta we need to start to discuss. Another quality think tank based in Alberta - the Canada West Foundation has also been posing this question for a couple of years now. I highly recommend the work of both of these organizations.
HERE IS WHAT THE C.D. HOWE HAS TO SAY:
Alberta's Royalty Review Panel released its final report on September 18, 2007, which recommended increases in provincial oil and gas royalties, particularly as they apply to oilsands extraction. In a column in today's National Post, C.D. Howe Institute President and CEO Bill Robson wonders what Alberta would do with even more resource revenue.
Alberta's chronic overrunsNational Post Wed 26 Sep 2007
The release of Our Fair Share by the panel studying Alberta's oil and gas royalties has prompted a loud debate. No surprise, with the panel recommending that the province boost its energy-related levies by almost $2-billion annually. The panel's message that Albertans should get more from their fossil-fuel resources has overshadowed its proposals to rationalize and rebalance energy taxes and royalties, while an industry already struggling with escalating costs in the oilsands naturally views the prospect of higher levies with alarm.
Premier Ed Stelmach has promised a response to the Royalty Review Panel's recommendations by mid-October. Before the provincial government acts, however, it needs to answer a question that the controversy over the panel's report risks obscuring:What would it do with the extra money?
The yo-yoing of provincial spending in Alberta as fossil fuels boomed and busted in the 1970s, 1980s and 1990s underlines this question's importance. It is all very well for the report to emphasize that Albertans own their sub-soil resources. The fact is they can only exercise their rights as owners through their provincial government. While the ways the province might use these extra dollars --further increases in provincial programs, tax relief in other areas, or saving to prepare for a leaner future-- was not part of the panel's mandate, they matter greatly for the report's ultimate larger impact.
Those who recall Alberta's misadventures with its Heritage Fund and its deep fiscal retrenchment of the mid-1990s will know that Alberta has always had trouble handling resource revenues adeptly. Experience since the mid-1990s provides a fresh lesson. In successive budgets since 1996, the provincial legislature has voted spending increases averaging less than 2% annually. But the final figures for each fiscal year showed actual spending increases averaged almost 7%. These chronic overruns had a huge cumulative effect. Rather than the cumulative spending increase of $4.5-billion anticipated in budgets, provincial spending ballooned more than $15-billion over the period. The cumulative overrun of $10.5-billion is equal to all of the province's budgeted health care spending last year.
While all Canadian governments have had trouble living up to their budget commitments over the past decade, the record of Alberta's legislative assembly is uniquely bad. The tendency for resource revenues to outpace projections, and for in-year or end-of-year spending surprises to absorb most of the extra money, has been a driving force behind this breakdown of fiscal accountability. The 2007 budget anticipated no less than a 12% jump in spending for the
current fiscal year -- even before overruns, that would make provincial spending almost double what it was at the beginning of the decade. Raising the province's take from the energy industry by one-fifth, as the panel recommends, amid an energy boom will add fuel to the fire, increasing the prospects for yet another sizeable overrun -- and for a painful mix of tax hikes and spending cuts as demographic pressures and the resources boom's inevitable fade squeeze Alberta's budget in the years ahead.
This prospect highlights an obvious point: Some potential uses for any extra energy revenue are clearly smarter than others. Lower corporate income-tax rates would enhance Alberta's attractiveness to all kinds of business -- and mute the impact of new levies on the energy industry. More personal income-tax relief would help Alberta attract and develop the human capital that can sustain growth beyond the current energy boom. Saving the funds and investing them in a diversified portfolio outside Alberta would also prepare the ground for a future with less resource revenue.
None of these options, however, is likely to appear as compelling as more spending. The resource boom has created many legitimate needs for more infrastructure and public services in the province. Less happily, it has also fuelled a sense among many Albertans that resource wealth entitles them to the best of everything. Pumping more government money into a red-hot economy will further push up costs and inflame expectations -- setting Alberta up for an even more painful fall when the cycle inevitably turns.
For this reason, the provincial government should make a fiscal plan for any extra revenues resulting from the panel's recommendations a precondition for their implementation. Although a long delay would be terrible for energy investment in the province, no long delay is needed: another panel will be making recommendations on how Alberta might set resource wealth aside for the future before year-end. A few extra weeks would help in sorting out some individual royalty and tax recommendations -- not to mention explore some of the panel's more difficult proposals about long-term stewardship and upgrading incentives. And importantly, it would set the royalty-review recommendations in a vital wider context -- as a step toward ensuring that the current energy boom reinforces Alberta's future economic and fiscal base -- and alleviate the pressure to take more revenue now, and think about how to spend it later.
Those who think the debate's "fair share" rhetoric demands faster action should take a fresh look at the numbers. The Royalty Review Panel put the revenue impact of its recommendations at just under $1.9-billion annually through the end of the decade. Even if the depressing effects of the new levies themselves reduce the take, we are talking a lot of money. Yet spending overruns since 2003 alone have absorbed three times that much! When extra money vanishes so quickly, how strong is the case for more?
-William Robson is president and chief executive of the C.D. Howe Institute.
C.D. Howe Institute67 Yonge Street, Suite 300, Toronto, Ontario M5E 1J8Phone: 416-865-1904; Fax: 416-865-1866http://www.cdhowe.org/
Wednesday, September 26, 2007
Tuesday, September 25, 2007
Please CBC - Talk to Some Real and Representative Albertans
I know it’s late and I know you’re weary. But this Blogger (thoughtinterrupted) captured so much of what I saw and felt with Mr. Levant’s guest spot on Don Newman’s Politics show yesterday.
Not all of us Albertans - in fact the vast majority of us are not anything like Mr. Levant in terms of view and values. He sure does fit the bill for the wetsuit wearing Stockwell Day model of what too many in the central Canada media likes to portray as the “typical Albertan.”
Expand your Alberta based Rolodex Mr. Newman and do the province - and the country a favour.
Not all of us Albertans - in fact the vast majority of us are not anything like Mr. Levant in terms of view and values. He sure does fit the bill for the wetsuit wearing Stockwell Day model of what too many in the central Canada media likes to portray as the “typical Albertan.”
Expand your Alberta based Rolodex Mr. Newman and do the province - and the country a favour.
A Reality Check on Oils Sands Costs and the Impact on Albertans.
Let’s get something straight about oil sand project costs. The oil sand project developers total project costs are paid by the citizens of Alberta in forgone royalties. This is under the current regime and would continue under the recommendations of Royalty Review Report. Only 1% of gross revenues are due as a royalty until all project construction, financing and operational costs during a project build and prior to plant production.
Sure government get taxes on the industry activity from personal income taxes on citizens who earn a living from working on are with the various projects. They get corporate taxes on net profits again – after all expenses are paid.
With that deal from Albertans why would project developer’s care about cost over runs? They end up being paid 100% by deferred royalties by Albertans in any event. Even after project costs are recovered and the royalty kicks in, the current 25% and the proposed 33% royalty of oil sands is only on NET PROFITS. Again all developer operating and related costs of a plant are deducted before royalties are calculated and charged. If a project has a net profit of 10% ( a modest assumption) that is the amount the royalty is calculated against - nothing more.
Besides project costs are management decisions in the hands of the corporations. If they are too high then management of the corporations needs to control them or make alternative arrangements. Like howabout spreading out the projects so they do not all chase the same workforce and suppliers at the same time and drive up prices for labour and materials.
When an oil sands project has a doubling of costs (and that seems to be the norm) they don’t even have to go back to further approvals from the EUB to have the impacts reviewed again. Those increased costs change the essence of the approvals and are not neutral on the rest of the Alberta economy nor the economy in the rest of the Canada. The project managers don’t have to consider the increased cost and accelerated project approvals might have on cumulative impact on housing prices, inflation, wage escalation and competition with other sectors or if municipalities can afford to compete for steel and concrete for public infrastructure.
At at high oil prices they can absorb the cost increases handily so they don’t seem to worry about the implications to other on such decisions. They get to unilaterally turn the entire province into what Fort McMurray has become...thank to the benign neglect of the Klein regime to the regional needs. IN fairness it was the oil sand companies working in conjunction with the municipality that did the calculation and delivered the needs assessment to the Klein government - only to be ignored at the political level. I know because I was on the team with industry and the regional government that wrote and presented the Wood Buffalo Business Case to the Alberta government in 2005.
To say high costs for project is a barrier and royalties are to be kept as they are is rich given who makes the decisions and that the rest of us end up paying the pipers. If that is not infuriating enough, I understand the oil companies have had record sustained profits in the recent past. Here is the kick in the head. Apparently senior people in some companies have had seven figure annual bonuses AND those costs are seen as project costs as well so the rest of us get to pay for them too.
Please you scions of the Alberta energy industry - say and prove this bonus bulls##t ain’t so. Inquiring minds want to know.
Sure government get taxes on the industry activity from personal income taxes on citizens who earn a living from working on are with the various projects. They get corporate taxes on net profits again – after all expenses are paid.
With that deal from Albertans why would project developer’s care about cost over runs? They end up being paid 100% by deferred royalties by Albertans in any event. Even after project costs are recovered and the royalty kicks in, the current 25% and the proposed 33% royalty of oil sands is only on NET PROFITS. Again all developer operating and related costs of a plant are deducted before royalties are calculated and charged. If a project has a net profit of 10% ( a modest assumption) that is the amount the royalty is calculated against - nothing more.
Besides project costs are management decisions in the hands of the corporations. If they are too high then management of the corporations needs to control them or make alternative arrangements. Like howabout spreading out the projects so they do not all chase the same workforce and suppliers at the same time and drive up prices for labour and materials.
When an oil sands project has a doubling of costs (and that seems to be the norm) they don’t even have to go back to further approvals from the EUB to have the impacts reviewed again. Those increased costs change the essence of the approvals and are not neutral on the rest of the Alberta economy nor the economy in the rest of the Canada. The project managers don’t have to consider the increased cost and accelerated project approvals might have on cumulative impact on housing prices, inflation, wage escalation and competition with other sectors or if municipalities can afford to compete for steel and concrete for public infrastructure.
At at high oil prices they can absorb the cost increases handily so they don’t seem to worry about the implications to other on such decisions. They get to unilaterally turn the entire province into what Fort McMurray has become...thank to the benign neglect of the Klein regime to the regional needs. IN fairness it was the oil sand companies working in conjunction with the municipality that did the calculation and delivered the needs assessment to the Klein government - only to be ignored at the political level. I know because I was on the team with industry and the regional government that wrote and presented the Wood Buffalo Business Case to the Alberta government in 2005.
To say high costs for project is a barrier and royalties are to be kept as they are is rich given who makes the decisions and that the rest of us end up paying the pipers. If that is not infuriating enough, I understand the oil companies have had record sustained profits in the recent past. Here is the kick in the head. Apparently senior people in some companies have had seven figure annual bonuses AND those costs are seen as project costs as well so the rest of us get to pay for them too.
Please you scions of the Alberta energy industry - say and prove this bonus bulls##t ain’t so. Inquiring minds want to know.
Stelmach Heckled at the Empire Club in Toronto
Premier Stelmach was heckled at the Empire Club speech in Toronto today over environmental concerns. My friend, crisis management and media relations specialist and fellow Blogger Allan Bonner was there and here is what he has to say about what happened.
The Edmonton Sun has a piece on the Empire Club - Stelmach event too.
The Edmonton Sun has a piece on the Empire Club - Stelmach event too.
Stelmach Wants More Royalty Review Input and Analysis
The Government of Alberta just issued a news release indicating that “While the formal consultation is over, we have not stopped listening. We want to make sure that people how have comments send them to the right place so we can consider this input as part of the review process.”
Nothing wrong with that per se and this initiative may be an obvious admission by the Alberta government that the old style of public consultation is not as effective as it should be at getting authentic citizen input. So citizens of Alberta here is your contact channels for your further input into the Royalty Review Report findings and process...www.alberta.ca and 427-0265. Get at ti and have your comments and concerns over the Royalty Review Report known to the powers that be. And you don’t even have to register as a Lobbyist to do this.
If you do not engage and the powers that be may very well make these decisions behind closed doors (again). If citizens of Alberta value accountability from their government to be reality not rhetoric they better start making those expectations known…loudly and clearly.
It looks like the energy industry gets their very own separate channel of continuing input and communications through the very capable Deputy Premier. He is said to “be the lead minister liaising with the energy industry.” This was the same approach used with the Mayor of Calgary and we saw how the municipal funding formulas were biased against Edmonton at the end of the day.
I am very wary about this approach. I expect everything that the industry says and presents to the government in this further consultation process will be fully disclosed by the government as the original inputs were done in public. This ahs to be part and parcel of a new spirit of an open, accountable and transparent government. I don't understand why doesn’t the government use the new all-party Standing Committee on Resources and Environment and have Industry make their cases there – in public and televised? The next scheduled meeting is October 2 so it is timely.
The Royalty Review Reports has some good advice in this regard too. At page 18 of the Executive Summary the Panel says:
“The government of Alberta must implement means to gather and assess the workings of all aspects of revenue policy and collection associate with energy resources in the province. This must be done on behalf of the citizens of Alberta, and its findings must be made public and have the highest degree of credibility. It must not be a confidential exercise internal to the government.”
Here is the strangest development of all. The Royalty Review Panel used Department of Energy data, senior staff and their advisers in determining what was going on with the industry-government relationships on resource revenues. The Department of Energy was chastised in the Royalty Review Report. The news release says the Minister of Energy is to “lead a technical analysis of the report.”
Nothing wrong with that per se and this initiative may be an obvious admission by the Alberta government that the old style of public consultation is not as effective as it should be at getting authentic citizen input. So citizens of Alberta here is your contact channels for your further input into the Royalty Review Report findings and process...www.alberta.ca and 427-0265. Get at ti and have your comments and concerns over the Royalty Review Report known to the powers that be. And you don’t even have to register as a Lobbyist to do this.
If you do not engage and the powers that be may very well make these decisions behind closed doors (again). If citizens of Alberta value accountability from their government to be reality not rhetoric they better start making those expectations known…loudly and clearly.
It looks like the energy industry gets their very own separate channel of continuing input and communications through the very capable Deputy Premier. He is said to “be the lead minister liaising with the energy industry.” This was the same approach used with the Mayor of Calgary and we saw how the municipal funding formulas were biased against Edmonton at the end of the day.
I am very wary about this approach. I expect everything that the industry says and presents to the government in this further consultation process will be fully disclosed by the government as the original inputs were done in public. This ahs to be part and parcel of a new spirit of an open, accountable and transparent government. I don't understand why doesn’t the government use the new all-party Standing Committee on Resources and Environment and have Industry make their cases there – in public and televised? The next scheduled meeting is October 2 so it is timely.
The Royalty Review Reports has some good advice in this regard too. At page 18 of the Executive Summary the Panel says:
“The government of Alberta must implement means to gather and assess the workings of all aspects of revenue policy and collection associate with energy resources in the province. This must be done on behalf of the citizens of Alberta, and its findings must be made public and have the highest degree of credibility. It must not be a confidential exercise internal to the government.”
Here is the strangest development of all. The Royalty Review Panel used Department of Energy data, senior staff and their advisers in determining what was going on with the industry-government relationships on resource revenues. The Department of Energy was chastised in the Royalty Review Report. The news release says the Minister of Energy is to “lead a technical analysis of the report.”
None of this fiasco is the current Minister’s fault but why on earth do they need a technical analysis of the report findings when it was the DOE data that was used with assistance of departmental staff and advisers who helped the Panel do the review in the first place? Surely they would not let any inaccuracies of a “technical” nature be included in the final document! What is this all about? If industry has a rebuttal on the figures and analysis – let them put it forward. Let’s not have another Melchin kind of faux Royalty Review when we were told “Don’t Worry – Be Happy – Your government has it all under control.”
The mandate of the Royalty Review did not allow for infrastructure, growth pressures and environmental issues to be considered in the public consultation. Too bad but understandable! Since the government has “…not stopped listening” Albertans ought to feel free to use this invitation to have input into the government at “the right places” so it can consider this input as well.
If industry gets a second kick at this – so should citizens. Wake up Alberta and get engaged. The opening sentence of the new release quotes Premier Stelmach: “The decision on the royalty report will affect Alberta and our energy sector for decades to come.” He can say that again - but the final decision his government will make will affect all Albertans in all walks of life and future generations too.
The mandate of the Royalty Review did not allow for infrastructure, growth pressures and environmental issues to be considered in the public consultation. Too bad but understandable! Since the government has “…not stopped listening” Albertans ought to feel free to use this invitation to have input into the government at “the right places” so it can consider this input as well.
If industry gets a second kick at this – so should citizens. Wake up Alberta and get engaged. The opening sentence of the new release quotes Premier Stelmach: “The decision on the royalty report will affect Alberta and our energy sector for decades to come.” He can say that again - but the final decision his government will make will affect all Albertans in all walks of life and future generations too.
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