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.

When It Comes to Alberta's Energy Resources, Whose "Golden Goose" Is it Anyway?

The old Klein government ruled by Steve West values was so suspicious of academics and expert advice one could almost say they were anti-intellectual.

Times have changed and this insightful editorial piece in the Edmonton Journal and the Calgary Herald by from U of C economics professors is living proof that times are a changin'.

Lets hope the Stelmach version of progressive and conservative policy and politics has a more informed and enlightened approach.

Toronto Investment Banker Say Alberta's Auditor General's Comments on Royalties is Outside His Mandate

I see in the Edmonton Journal editorial pages today another institutional broker has taken a public position on the Alberta energy royalties. This time at least the article is not calling Albertans stupid but instead they have targeted Fred Dunn, the Alberta Auditor General.

The writer is reported to be a Calgary broker for Westwind Partners Inc., a Toronto based investment bank, which according to their website, just sold out to an American firm.


The article is accusing Dunn of commenting “well beyond his mandate” and saying he is “irresponsibly poured gasoline on the funeral pyre of Alberta’s free-market boom.” Pretty romantic prose for a broker.


For clarity Section 29 of the Auditor General Act says: "The Auditor General may, at the request of a department, Provincial agency or Crown‑controlled organization or any other organization or body of which the Auditor General is the auditor, provide advice relating to the organization, systems and proposed course of action of the department, (emphasis added)Provincial agency or Crown‑controlled or other organization or body."

Dunn is accused of over-reaching his authority by commenting and assessing the quality of our political leadership. A plain reading of the AG Report on the Department of Energy royalty system audit shows Dunn is clearly within the scope of the Auditor General Act. As for leadership assessment, Dunn merely outlines the role of the Minister of Energy at page 91 when he says:

“The Minister of Energy is legislatively responsible for designing, operating, monitoring and adjusting royalty regimes. While the Minister takes advice for a variety of stakeholders and needs authorization (Cabinet approval) to make regime changes, he has the final responsibility for the stewardship of Alberta’s oil, gas and oil sands resources. The Department of Energy supports him by analyzing royalty issues and regimes and implementing royalty policy.”

Dunn goes further to explain and confirm he is operating and commenting within his mandate in his report also at page 91. Noting that the Department’s advice to the Minister “beginning at least three years ago” that the Alberta royalty share had “fallen below stated government revenue targets” and that an additional $1B per year in royalty payments could be charged “without stifling industry profitability.” This is just stating a fact.

In the paragraph on page 92 of the Auditor General’s Report, entitled “Why have changes not been made?” Dunn is again careful to point out “the Minister of Energy has final responsibility and is accountable for these decisions.” (on royalty regimes). Dunn then appropriately notes “Our audit mandate does not extend to auditing or judging policy decisions such as changes to the royalty regime. However, we do report on systems where sound analysis of Albertans’ most valuable physical asset does not appear to have le to timely action.”

Dunn then goes on to make five recommendations directly related to “…strengthening the Department’s royalty review system and enhance accountability for the resources stewardship.”

So J.P. Veitch I disagree that Dunn is assessing political leadership in his audit. He is making systemic recommendations for more accountability, transparency, and better stewardship of Alberta’s “most valuable physical asset” and that is within his legislated mandate.

Citizens of Alberta will assess Dunn’s report and its findings. We are already looking at our government’s actions as our Trustees of our natural resources. Just read the letters to the editors of Alberta’s newspapers and the comments on the Blogosphere for proof of that happening. Citizens’ will assess and judge the quality of our political leadership and resource stewardship and decide what to do in the next election. Albertans are fully engaged and not amused by the actions of the industry and very unhappy about the exercise of our government’s role and responsibility as well.

One final point on the Westwind Partners Inc. piece needs comment. That is the allegation that the Royalty Review Panel is “engaged in visiting editorial boards across the province, spending taxpayers’ money in a public relations exercise designed to promote its view of the world…” I have spoken with the Chair of the Royalty Review Panel, Mr. Bill Hunter and can assure J.P. Veitch that the panellists are commenting and clarifying the issues in their “Our Fair Share” report on their own time at no charge to the taxpayers of Alberta.

On the other hand I fully expect the energy industry’s current full-court-press public relations campaign and lobbying costs will be designated by them as project costs. As a result the lobbying and PR money being spent by the industry to scare Albertans will be used to reduce their project net profits and thereby reduce Albertan’s royalty share as a result.

Remember Albertan’s royalties are calculated on NET PROFITS only. In short, Albertan’s should not be surprised if their non-renewable resource tenants are charging all of their current lobbying costs to the citizens of Alberta.

Ironic wouldn’t you say?

New Poll on Tobacco Control in Alberta Coming Next Week

On Tuesday there will likely be a news release of a new poll that is focused on Albertan’s attitudes toward tobacco control in the province and the new Bill 45 tobcco control legislation. I have an advance copy of the poll results and they are very interesting indeed.

I will post some detailed analysis of how Albertans feel about the need to pass, enforce and continue to press for improved tobacco control legislation in their province. I will wait until once the news release it out.

The old Klein regime had tobacco control champions in Cabinet but none were able to get proposals passed the former Premier and Deputy Premier. With the new leadership of Ed Stelmach and Dave Hancock we have seen this dramatic change of heart in the PC Caucus that supports this life saving and disease prevention legislation.

For the record and in the spirit of full disclosure I have worked on lobbying efforts that helped a strong and determined health sector coalition get this legislation introduced and passed Second Reading in the last Legisltive Session. It is scheduled to receive Third Reading and Proclamation when the Legislature goes back in session in early November. Regulations over enforcement and timing of implementation are being drafted now and should get through Cabinet shortly afterwards.

Stay tuned. Albertans want to be leaders in wellness and disease prevention especially when it comes to tobacco.

Debunking Some So-Called Truths on the Royalty Review Report.

So here is the link to Charles Frank, the Business Editor of the Calgary Herald that some anonymous commenters on this Blog think is the most balanced informed and intelligent print voice on the issues surrounding royalties. Well he is definitely more balanced and informed than Lorne Gunter of the National Post but he is no more thoughtful or intelligent than Thomson and Pratt – or Lamphier on the issues and implications of past and future royalty issues in Alberta.

I would like to explore and agree with some observations and take issue with some of Mr. Frank’s other “Truths.”

Oil Industry Strategy at Royalty Public Hearings Badly Flawed:
1 Mr. Frank is right the oil industry strategy going into the province-wide hearings was flawed. They were not used to having to make their case to government in public and they are proving that they are not used to not having their way. The presentations they made were intentionally misleading. They were based on outdated information like a 10 year old expert consultant’s report. The Review Panel used the same expert consultant to update his report and he found the situation on the Alberta royalties was not longer amongst the most expensive, the just opposite now. The industry was caught with its pants down, and this was not the only time they were found to be misleading and embarrassing to themselves in this process.

2 Some oil industry presenters represented there businesses were in serious trouble but when asked to submit their Annual Reports they were showing record profits and describing the future in glowing optimist language. Again there were some in the oil and gas sector who were intentionally misleading and disingenuous. There are other examples showing that attitude continues to this day from some of the players in the patch. That was (and is) definitely a bad strategy especially when everyone is watching and you have qualified and knowledgeable Review Panel who are prepared to verify representations.

Review Panel Had Its Own Agenda:
3 No sir it didn’t. It had a mandate from the Premier with specific terms of reference and timelines. In fact the only “own agenda” the Panel had was actually discussed by them in the “Our Fair Share” Report. It noted that most of the public’s presentations were on growth, infrastructure and environmental problems with the oil industry. That was outside the Panel’s terms of references and they said that exclusion was an unfortunate limitation on the Royalty Review Panel’s work. If they had “their own agenda, it was also the Premier’s agenda and, based on presentations form citizens, it was the publics agenda too. If Big Oil doesn’t see that they are making another strategic error.

The Panel’s Expectation That Their Report Be Adopted in Total:
4 Mr. Frank takes exception to this representation. However he fails to put this representation in context. The Panel was to look at the entire current and future fossil-fuel energy sector from conventional oil and gas and oils sands but also including Coal Bed Methane, Syngas and even biomass to some degree. The various elements form and integrated systemic energy industry. The Panel dealt with it as an integrated systemic whole in its Report. That balancing and integration of interests is well represented in the final Report. To politically cherry pick and prefer one sector without looking at the implications for the rest is dangerous. We have just sent the disastrous impact of such selective politically driven ideological decision making in the Affordable Housing Task Force. Again we have all the interests and an expert panel provides an integrated whole-system solution that needed to be seen as in entirely. Politicians picked parts and pieces and the result was no real solution – just throw more money at the problem. The Royalty Panel’s approaches are a take it or leave it systemic option for the policy makers. It is complex stuff but the Panel brings clarity to the issues and concerns. Cherry picking recommendations based on politics is not going to resole the complexity or solve the problems. It will only make it worse.

5 To suggest the Panel “may not have considered all the relevant financial and economic data is obfuscation of the worst kind. They had full unedited access to all the data on the energy sector in the hands of the government and the regulators, except of course for individual corporate proprietary information. They had full unfettered access to the senior government administrators and all the third party consultant reports commissioned and provided to government. They were able to hire their own outside consultants without political interference. To see those industry titans and their hired hands now revising their stance using different data and different methodologies in an attempt to discredit the Panel’s work is not surprising but it is disappointing – and again a flawed strategy. If the industry had this better information and methodology, why did they not present it at the hearings? Are they holding back critical information from government? Are they making it up as they go along? None of this adds to the credibility of the industry or enhances the confidence of the public that they have anything except their own interests at heart as they exploit OUR resources.

Finally I agree with Mr. Frank hat the Alberta economy is not bullet proof. Much of investor confidence is based on mass psychology so we must be careful. That said we also have the current negative mass psychology that we are growing too fast, without a plan and no defined end targets or objectives other that to go as fast and furious as possible at any cost – so long and the oil prices can handle it. The Calgary Belt-liners live in this latter logic bubble and they have lost touch with the rest of Alberta. The bullet that can do in the Alberta economy can be not enough growth but it can also be too much growth too fast.

I have more observations on Mr. Frank’s “Truths” but this posting is already too long. I can assure you I will definitely be an avid reader of his from now on.