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Monday, August 23, 2004

Alberta giving oil companies a free ride

Yesterday the Klein government announced that nine billion dollars in oil and gas revenues will flood into the Alberta treasury this year. By 2015 government oil and gas revenues will top 20 billion. The fault lies not with the Klein government but with the Whabbi terrorist movement, Russian power politics and the international price of oil. And the revenues come into a province whose ranchers are going bankrupt, whose citizens pay health care premiums, whose municipalities are going broke, whose students can't afford to go to college and whose classrooms are overcrowded.

On top of that, says Amy Taylor (For Amy Taylor's Background, Click Here) of Drayton Valley's Pembina Institute, oil companies aren't paying enough for the oil they buy from the Alberta government and extract from government oil fields. In a Pembina Report titled "When the Government is the Landlord" Taylor reports that Alberta charges (by way of royalties, taxes, up-front lease acquisition payments) only $4.37 per barrel of oil equivalent (oilmen compare gas to oil by measuring both in "barrels of oil equivalent" or "BOE"). B.C. charges $5.40, Saskatchewan charges $4.70. According to Taylor we Albertans are suckers, especially when Taylor compares Alberta to Alaska and to Norway. The people of Alaska charge oil companies almost $12.00 per barrel and Norway charges $14.00 per barrel. Yes but, says Murray Smith, Alberta's oil company lovin' Energy Minister, but it's a lot costlier to take oil and gas out of Alberta (average production per well is 30 barrels a day) than out of Alaska's and Norway's offshore wells (average production per day per well is 6,000 barrels per day) - "It's like trying to compare an apple with a banana," says Smith. Aha, counters Amy Taylor, we expert economists can do that - we can convert an apple into a banana - us expert economists call it Economic Rent Analysis. Deduct all an oil company's costs (including the additional costs of lower producing wells like Alberta's) from an oil company's revenues - that's what we call "economic rent". Alberta's royalties are only 69% of economic rent. By comparison, Alaska charges exactly 100% of economic rent. Norway - 90%.

Not only that, says Amy Taylor - the money Alberta does get is frittered away (e.g. asks the Eye Opener, to subsidize voters' electricity and gas bills just before the 2001 provincial election?) - Alaska has a rainy day fund of $36 billion (Alaska's fund has grown from 23 billion in 1995) and Norway has a fund of over $100 billion (Norway's fund has grown from $11 billion in 1995). But Alberta's fund (the Heritage Trust Fund) has shrunk to $12 billion from $14 billion in 1995. We didn't hear what Murray Smith had to say about that one. It may well be, speculates the Eye Opener, that neither Alaska nor Norway have employed putty-headed Tory investment firms to invest energy revenues for them.

All in all, the Eye Opener was pretty impressed with Taylor and the Pembina Institute (which most of the savy media call a "think tank"). But then the Eye Opener got to thinking and wondering. We don't doubt that the Pembina Institutes figures are correct. We suspect that the Lougheed, Getty and Klein governments would have bought the Brooklyn Bridge from a properly certified Tory supporter, say Bud McCaig or Ron Southern or Big Mike Lobsinger. But seems to us that oil and gas drilling stopped in Saskatchewan, and in B.C., when NDP governments started talking in high-faluting economic terms about "economic rent " and such and then raised royalty rates. And we asked Amy if "economic rent" allowed any profit for an oil company - the answer was no. And then we got to wondering who the Pembina Institute was - where did it get it's funding. The only men or beasts we found who had donated funds to the Pembina Institute were the Federal Liberal Government ($100,000 in 2001) and an entity called "Ontario Power Generator" which once was Ontario Hydro and used to be run by Maurice Strong the Liberal bureaupreneur and latter day Jesse James - he co-engineered the Liberal's great oil robbery, the National Energy Program. Amy tells us that the Walter and Donald Gordon Foundation funded her study. Readers will remember Walter Gordon, Lester Pearson's wealthy one-time Minister of Finance (he had to resign soon after he was appointed - he had screwed up his first budget big-time). Walter was the Liberal's top economic nationalist and TorontoFirster. Walter, the author of the notorious Investment Review Act, was no friend of Alberta or Alberta's oil and gas industry. Walter and his brother originally set up the foundation.

Amy Taylor

Amy Taylor is the Pembina Institute's Director of Ecological Fiscal Reform. Ms. Taylor joined the Pembina Institute following contract work with the Energy and Materials Research Group at Simon Fraser University. She was also the lead author and researcher for the B.C.Ministry of Finance's 1999 discussion paper, "Environmental Tax Shift: A Discussion Paper for British Columbians." Since joining the Pembina Institute in May of 2000, Amy has completed numerous projects on ecological fiscal reform for the National Roundtable on the Environment and the Economy and the Green Economy Secretariat of the British Columbia Government. She has co-organized and ran an international conference on environmental taxation and has worked with resource sector leaders to advance environmental tax shifting policy in Canada. She has recently completed an International Survey of Policies and Programs Related to Hydrogen and Fuel Fells, an International Survey of Policies and Programs Related to Bioenergy Production and Consumption for Industry Canada. Amy has completed several projects on tax and subsidy reform including work related to public expenditure on metal mining in Canada. Ms Taylor holds an honours undergraduate degree in Environmental Science and Economics and a Masters in Resource Environmental Management.

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