What an odd debate it is that is breaking out in Alberta over the report that is stating decades of Conservative governments have been giving away their oil. Alberta's government owns the resource and gets to charge a royalty for it's exploitation. While the new Premier has to make the decision, former Premier Klein is showing where his loyalties are to be found:
Speaking yesterday to an industry group in Calgary, Mr. Klein criticized the report, insisting that the province's previous fiscal regime had provided the necessary stability for companies to invest in Alberta. "These are the things that separate us from places like Venezuela and Iraq, where governments hold foreign companies hostage by arbitrarily hiking royalties," he said. "We don't do business like that in this province. We have a fair, clear and comprehensive royalty regime, where the rules are the same for everyone and they don't change on a whim."This is on top of another former Premier, Peter Loughheed causing controversy by suggesting that concern should be had for the state of the Albertan environment in light of the expansion of the oil patch and suggesting increased claims for extra-provincial wealth sharing were coming.
The other day, bouncing around ideas someone came up with beerocracy but it turns out that was an idea once before, one blogger ranking tops on Google for noting in 2003 that the "term was coined by Lady Nancy Astor to describe the Scottish brewing families that entered politics and were influential in Parliament in the late 19th and early 20th centuries, and they somehow never brought about a boozy paradise for all." The influence continued longer than that. Point? I don't know. But it is interesting to note the unique difficulties and disadvantages that come with windfall booms and monoconomies.
Comments
Hans - September 20, 2007 11:06 am
"...where governments hold foreign companies hostage by arbitrarily hiking royalties...."
Why is it mean to charge enormous fees for the right to exploit these public resources when such companies make enormous profits from same?
Why is it mean for a public government to protect its public's property from other actors through fees but it is not mean for a "foreign company" to protect its property by charging to provide it instead of giving it away?
How is it holding foreign companies hostage if they are charged a free and sign an agreement to come and exploit the resources on that basis? Can't they stay away if the terms are onerous?
Did I just fisk Ralph Klein? Good Lord........
Jay Currie - September 20, 2007 4:47 pm
It would make sense for Alberta to hike its royalties to some extent. It will be interesting, however, to see how such a hike is implemented.
One way of doing it is to leave the current royalty in place and then put a floating additional royalty in which tracked the price of oil. That way no one can claim that they made their investment under one set of rules only to have the government change the rules; rather, the royalty regime underwhich they were making their investment would stay the same and only the change in oil price would attract higher royalties.
Of course this entirely begs the question of what Alberta is going to do with the extra money. I suppose the total elimination of provincial income tax would be attractive. The problem, of course, being that politicians have an irritating desire to spend money rather than return it to the citizens.
Jay Currie - September 20, 2007 4:50 pm
By the way, nice to see the ad for the private Calgary based MRI facility over to the right. I clicked it so you should have .07 towards your "turning 50" MRI.
Alan - September 20, 2007 4:55 pm
What other industry could possibly say with a straight fece that it made its investment under one set of rules therefore all regulation shifts should stop? Nice to see that Ralph Klein thought so much of the Canadians who were his consituency that he obviously never imagined them sharing in the windfall price from their windfall asset. No, such things should only be shared with others.
Candace - September 21, 2007 1:44 am
I don't think it's all that black & white, especially with many Albertans remembering oil companies closing their doors in the 80s with mass layoffs. The gut reaction is to move very slowly & cautiously.
That being said, the royalty holiday was put in place when, realistically, oil from oilsands was not economical. That is no longer the case. I sincerely doubt that all those oil companies haven't been seeing this coming for quite some time. It also doesn't help the province's argument that we are debt-free so can't claim desperate need.
Maybe we should ask Syncrude & Suncor to pay for the twinning of Hwy 63 (Edm to Fort Mac)? After all, it's required because of their success... And maybe whatever hospital(s) or school(s) are required to support the families working in Fort Mac? Maybe they'd like that rather than a higher royalty?
I don't care either way. I think the royalties need to be adjusted, but with a view toward sustainability (something DannyBoy of NFL doesn't seem, IMHO, to get). If, instead, we get the oil companies to pay for all the upgrades required to support them, that works for me, too.
This will be interesting to watch.
David Janes - September 21, 2007 10:00 am
A few brief notes.
I have a friend who does oil industry analysis for a Very Large wall street firm. He (and they) were always of the opinion that Alberta was being taken for a ride, mainly because the revenue/cost structures was being "gamed" by the industry.
As Al says, what other industry expects the rules to remain the same forever. However, it's pefectly natural for them to bitch and moan -- it's all part of the game of negotation. However, politically stable places, let alone with increasing large amounts of recoverable oil, are rarer than hen's teeth, so what are they going to do?
I think that Newfoundland's latest breakthrough has to be factored in to how the public perceives negotiating with oil companies these days too!