08) BIG OIL WINS AGAIN IN ALBERTA ROYALTY REVIEW

 

By Kimball Cariou

 

            A wide range of critics have already slammed the Alberta NDP government’s decision to accept a review panel’s recommendation for a decade-long cap on royalty rates paid by oil and gas companies.

 

            In a scathing commentary in the Tyee (http://thetyee.ca/News/2016/02/02/Alberta-Royalty-Review-Disaster/), energy and environment researcher Andrew Nikiforuk calls the move “a capitulation to Big Oil and its financial backers.”

 

            Conducted by pro-corporate appointees, the panel claims that the collapse in global oil prices leaves Alberta with no room to increase royalty rates, which paid by the companies to the legal owner (the province, in this case) for the right to develop the resource.

 

            One key reason for last year’s defeat of the Tory government of Alberta was its policy of consistently lowering royalty rates to among the lowest in the world, while saving almost nothing for future generations. Working people finally revolted against this blatant fiscal mismanagement, electing the NDP’s Rachel Notley in hopes of reversing this trend.

 

            In opposition for decades, the NDP had often been critical of low royalty rates, particularly when the province went through periodic revenue droughts and brutal cuts to public services. During the campaign, Notley had promised to commission a review of the issue.

 

            Since then, the energy industry and right-wing forces have gone on the offensive, blaming the new government for the province’s fiscal shortfall and claiming that increased royalty rates would destroy the economy. In this situation, the review concluded that the "current share of value Albertans receive from our resources is generally appropriate."

 

            The review calls to maintain current royalty rates for wells drilled before 2017, and to set a generic five per cent rate for all new oil and gas wells drilled after 2017. Nikiforuk calls this “equivalent to grading and selling all cuts of beef as hamburger.”

 

            Unless a major public campaign to defeat this approach succeeds, this policy would lower Alberta's royalties by another billion dollars a year, according to Jim Roy, a former senior advisor on royalty policy for Alberta Energy.

 

            Alberta's total royalty revenues from hydrocarbons in the 2015/16 fiscal year were $2.8 billion, far below the level of $10 billion or more during the boom years, when oil and gas corporations racked up tens of billions in profits annually.

 

            Many industry observers point out that frozen rates will only encourage more production and investment, and lower oil prices. This seems obvious, since the current prices are linked to massive overproduction by Canadian bitumen producers and U.S. oil shale fracking. Since 1998, tar sands oil production has gone from nearly 800,000 barrels a day to more than 2.3 million barrels, thanks in large part to low royalties and government incentives and subsidies.

 

            But the review was not conducted by independent analysts. Two key panel members work for firms which invest billions in the energy industry: Dave Mowat, president of the Alberta Treasury Branch and Peter Tertzakian, managing director of Arc Financial Corp.

 

            Jim Roy’s view is that their plan “appears to be to increase Alberta production at the maximum possible rate despite low prices… This strategy may help American consumers, but does not help Alberta owners."

 

            The province’s most recent royalty review, held in 2007 at a time of high oil prices, actually cost the Alberta treasury more than $12 billion revenue, according to Roy's analysis, reported in The Tyee last year.

 

            Economist Mark Anielski has reported how the province would have benefited if it had stuck to the royalty regime implemented by Peter Lougheed, the Conservative Premier elected in 1971: "Had Alberta maintained a 30 per cent royalty rate on the share of the value of the oil and gas produced between 1971 to 2014, Albertans would have generated $471.4 billion in oil and gas royalties. Had 50 per cent of these royalties been invested in the Alberta Heritage Savings and Trust Fund with annual average return of five per cent per annum we would now have an investment account worth over $481 billion."

 

            At present, the Heritage Fund holds less than $20 billion.

 

           No wonder that even friends and supporters of the NDP are speaking out. In an interview with the Calgary Sun, Alberta Federation of Labour president Gil McGowan said, "Some people say the NDP have come face to face with reality. I say what happened can best be described as the government being captured by industry... I honestly think the government has made a profound political mistake. We don't believe progressive governments have to become conservative to deal effectively with economic issues or to succeed politically. That’s a fallacy."

 

            To accusations of calling for a “money grab” while the economy is suffering, McGowan responded, "No one on the left or the right in Alberta is suggesting the government engage in a cash grab at this time when prices are near historic lows."

 

            But the AFL president is angry that virtually none of the labour movement’s concerns or suggestions are reflected in the royalty report: "Those ideas were passed over in favour of a plan that could have been introduced by a PC or Wildrose government."

 

            McGowan stressed that the AFL had consulted well-known energy economists to "put forward a case for creative, progressive alternatives to the ones put forward by the oil industry and assorted conservative parties. We had high hopes at least some of those progressive alternatives would have found their way into the final report." That did not happen. Now, it remains to be seen whether the Notley government, already besieged by far right critics, can survive after alienating much of its own political base.                     

 

(The above article is from the February 15-29, 2016, issue of People's Voice, Canada's leading socialist newspaper. Articles can be reprinted free if the source is credited. Subscription rates in Canada: $30/year, or $15 low income rate; for U.S. readers - $45 US per year; other overseas readers - $45 US or $50 CDN per year. Send to People's Voice, c/o PV Business Manager, 706 Clark Drive, Vancouver, BC, V5L 3J1.)