Tories knew decision would lead to deficit
Internal report in 2010 warned of fiscal consequences from royalty cut
Edmonton – Recently uncovered internal reports show that the Government of Alberta had long predicted this year’s deficits and budget cuts.
The confidential draft document “Energizing Investment Phase 2: Royalty Curves and Adjustments,” shows the government projected a 2012/2013 surplus of $505 million in 2012/2013 without the reductions to royalty rates for unconventional oil and gas production, or a $142 million deficit if the rates were reduced.
On May 27, two days after this document was created, the government went ahead with the royalty reductions.
“They’ve been acting like this year’s deficit came as some kind of surprise to them, and they’ve tried to point fingers at bitumen prices,” Alberta Federation of Labour president Gil McGowan said. “But the deficit was predictable, and was predicted in this report to the minister. Royalty reductions were to blame, and were blamed in this report.”
The document projects that those royalty reductions will have larger revenue impacts in 2013/2014 and 2014/2015, though it does not show adjusted budget surpluses or deficits for those years.
“Royalty rates are part of the adult conversation Albertans need to have about revenue,” McGowan said. “Let’s start with looking at what royalty giveaways have already done to this province.”
The document goes on to show that the low rate on royalties mean that in some cases, oil and gas companies can recoup their capital costs in under a year.
“The decision to lower royalty rates in 2010 was a panic decision,” McGowan said. “And you don’t make good choices when you’re panicking. The royalty rates were unwarranted.”
AFL Backgrounder: Unconventional Royalty Breaks caused last year’s deficit confidential government documents
-30-MEDIA CONTACTS:
Gil McGowan, President, Alberta Federation of Labour at 780-218-9888 (cell)
Olav Rokne, AFL Communications Director at 780-289-6528 (cell) or via email [email protected].
Angola profits more from oil than Alberta: AFL
The impoverished, war-torn African nation of Angola rakes in more oil profits than Alberta, argues the Alberta Federation of Labour.
According to an April 2011 government review obtained by the labour group, the province gains 55% of windfall industry profits, compared to 78% for Angola and 69% in Russia. AFL president Gil McGowan says this proves Alberta's low oil prices are "ripping off" taxpayers, while being asked to endure spending cuts at the provincial and federal level.
"The big argument from industry groups is that we shouldn't worry about our low royalty rates, because the industry generates lots of jobs and that's what we should be concerned about," he says.
Organizations like the Canadian Association of Petroleum Producers, for instance, boast that the oilsands has provided thousands of jobs across the country, is the largest employer of aboriginals in Canada and offers some of the highest-paying salaries in Canada.
"But other oil producing countries have managed to balance both," says McGowan.
While McGowan acknowledges Alberta's standard of living is significantly better than a country like Angola — that country is still recovering from a decades-long civil war that killed more than 500,000 civilians — he says other developed countries command higher royalties without discouraging investment from the oil industry.
Norway, for instance, demands 81% of windfall energy profits and has a reserve savings account worth $700 billion, despite having smaller oil reserves and neighbouring oil-rich Russia. Alberta's Heritage Trust Fund is worth $16 billion after 37 years.
"Even the United States, where most of the big oil companies doing business are based, charge higher oil rates than Alberta," said McGowan. "Lately, there's been a lot of news about the jobs being generated in North Dakota's oil fields. They charge higher than Alberta."
Both the Tories and Wildrose Party have no interest in raising Alberta's royalty rates, arguing the prices keep the oilsands competitive on the global market and are fair. A 2008 attempt to do so caused massive criticism, but McGowan says the outrage is misguided.
"Royalties are not the same as high taxes that could drive away investment," he says. "They are a price for companies to develop our resources and any business owner knows it doesn't make sense to give away assets for next to nothing. Could you imagine if Ontario's auto industry asked the government to provide discount steel to make cars in exchange for more jobs? Canadians would be up in arms. But if we give away raw bitumen at low prices, that's fine?"
Fort McMurray Today, Wednesday, Apr. 03, 2013
Byline: Vincent McDermott
No policy change on oilsands processing
The demise of the $11.6-billion Voyageur upgrader project won't change the Redford government's hands-off approach around oilsands processing, provincial Energy Minister Ken Hughes said Thursday.
Hughes also suggested the Progressive Conservative government won't alter its policies to meet the goal set by former premier Ed Stelmach of processing two-thirds of Alberta's bitumen into light oil by 2020.
"It's an interesting goal," Hughes said in an interview.
"If that was physically possible with private sector initiatives, then that would be something we could accomplish. But I would argue that if the only way to accomplish that goal is by doing things that are financially and economically unnatural, then I would say that would not be wise for Alberta."
In 2011, 56 per cent of bitumen was upgraded in the province, according to the Energy Resources Conservation Board (ERCB). With an expected major increase in oilsands production, that figure is expected to drop to 44 per cent by 2021.
That figure could drop further with Suncor's Wednesday cancellation of Voyageur, which was intended to convert 200,000 barrels of bitumen per day from the Fort Hills oilsands mine into refinery-ready synthetic crude oil starting in 2017.
A glut of light oil in the North American market helped make the economics of the project unfeasible.
The Tory government has made gaining access to new markets through pipelines to the U.S. Gulf Coast, B.C. and Eastern Canada a priority.
While the price differential between conventional oil and bitumen has narrowed considerably in recent weeks - shrinking to $14.35 a barrel on Thursday - the government says the discount for oilsands has led to a massive revenue shortfall this year.
Hughes said the province shouldn't be concerned only with increasing upgrading within its own boundaries.
"Adding value to Alberta products anywhere in Canada is really good for Alberta as well. It doesn't overheat our economy ... and it does get our product to the market in a way that creates goodwill in other parts of Canada," he said. "It creates jobs in other parts of Canada, it creates economic stability in other parts of Canada."
But the Tories have faced considerable criticism, from the NDP and elsewhere, for focusing their attention on promoting pipelines to ship bitumen out of province, rather than providing incentives for upgrading.
Alberta Federation of Labour president Gil McGowan said the Voyageur situation shows that oilsands processing can't be left solely in the hands of the private sector.
Upgrading within the province will create products that fetch a better price than raw bitumen and create thousands of new jobs, he argued.
"Alberta will never move up the value ladder unless the government gets involved more aggressively in decisions over how our resources are developed," McGowan said, adding he wants actions such as conditions included on oilsands leases, not "subsidies or handouts."
Hughes said it was "naive" to think the province has the capacity to process all the bitumen produced.
But he noted the government does provide incentives through its Bitumen Royalty in Kind (BRIK) program, in which the province receives oil for its share of royalties from producers. The program is being used with the $5.7-billion North West Upgrading project near Edmonton, which will see bitumen refined into diesel.
In February, Premier Alison Redford and Saskatchewan Premier Brad Wall held preliminary discussions on a strategy to work with Ottawa and industry to boost Western Canada's refining and upgrading capacity.
Hughes said the governments are interested in talking to companies about whether a new model akin to the BRIK program could be developed to provide further incentives to industry.
But direct investment is not on the table and private companies must be in the lead, he said.
The Calgary Herald, Monday, Apr. 01, 2013
Byline: James Wood
Alberta facing questions on the prices of energy sources
The Province is facing some intense scrutiny on the prices of it's energy sources.
The criticism comes after a leaked report suggesting Alberta is not doing a great job at getting good prices for energy.
The recently leaked report suggests that Alberta is lagging behind countries like Norway,Russia, and Angola, when it comes to getting a good value for our natural resources.
Alberta Federation of Labour President Gil McGowan tells the Alberta Morning News that increasing royalties would not necessarily have a negative impact on the energy industry.
"The energy industry has been very, very effective in demonizing royalties and they've also been very effective in making PR opportunities out of things like the global economic collapse, cause that's really what happened in 2008" says McGowan.
McGowan believes that a country like Angola has done a much better job at negotiating their energy royalties than we are.
Angola gets 75% of the excess product after costs compared to the just over 50% Alberta is currently getting.
McGowan says during the reign of Ed Stelmach as Premier spin doctors were able to successfully play the fear card after Stelmach's Royalty increase. (JSL/QR77/AMNEWS)
i880News.com, Sunday, Mar. 30, 2013
Byline: Joel Lefevre
Alberta facing questions on the prices of energy sources
The Province is facing some intense scrutiny on the prices of it's energy sources.
The criticism comes after a leaked report suggesting Alberta is not doing a great job at getting good prices for energy.
The recently leaked report suggests that Alberta is lagging behind countries like Norway,Russia, and Angola, when it comes to getting a good value for our natural resources.
Alberta Federation of Labour President Gil McGowan tells the Alberta Morning News that increasing royalties would not necessarily have a negative impact on the energy industry.
"The energy industry has been very, very effective in demonizing royalties and they've also been very effective in making PR opportunities out of things like the global economic collapse, cause that's really what happened in 2008" says McGowan.
McGowan believes that a country like Angola has done a much better job at negotiating their energy royalties than we are.
Angola gets 75% of the excess product after costs compared to the just over 50% Alberta is currently getting.
McGowan says during the reign of Ed Stelmach as Premier spin doctors were able to successfully play the fear card after Stelmach's Royalty increase.
i880News, Saturday, Mar. 30, 2013
Byline: Joel Lefevre
Alberta’s largest union urges government to increase oilsands royalty rates
The Alberta Federation of Labour claims it has obtained a government report which shows the province is getting less for it's heavy oil compared to other jurisdictions with a similar product including war-torn Angola.
AFL President Gil McGowan says the Tory government only has itself to blame for the red ink on it's ledge.
McGowan says Alberta should increase it's heavy crude royalty rate from 55 to 64 per cent as recommended by a review panel by in 2007.
He says the reason why former Premier Ed Stelmach reversed a royalty increase a few years ago is because he was a weak leader and was bullied by oil and gas companies that didn't want to see their profits reduced.
The AFL says hiking royalty rates would not scare away investment and would generate the revenue needed to build hospitals, schools and roads while pumping more cash into the Heritage Savings Trust Fund.
660 News, Thursday, Mar. 28, 2013
Byline: Kevin Usselman
Angolans get more for their oil than Albertans
Albertans collect lower revenues from heavy crude oil than war-torn African nation
Calgary – Albertans are getting less for our heavy crude oil than other nations with comparable resources, according to Alberta's Department of Energy.
In a report obtained by the Alberta Federation of Labour, government analysts compared royalty and tax rates for heavy crude oil and found that Alberta charges significantly less for their resource than other nations with comparable heavy crude such as Norway, Russia and Angola.
“Oil companies in Alberta benefit from the political stability, first-world infrastructure and an educated workforce,” AFL president Gil McGowan said, noting that some of the nations in the report are known for civil turmoil. “Royalty and corporate tax rates have an impact on the lives of everyday Albertans. Higher oil royalties have helped Angola turn a budget deficit of 8.6 per cent of GDP in 2009 into a surplus of 12 per cent of GDP in 2012. The country is improving, in part thanks to reasonable oil royalties.”
Angola suffered more than 1.5-million casualties during a 27-year civil war that ended in 2002. Despite ten years of landmine clearing efforts, according to United Nations estimates the country is littered with 10-20 million landmines, or about one landmine per person living in the country.
According to the internal government document, Alberta offers an extreme value to this long-lasting resource by reducing the otherwise high risk premium in some regions of unrest.” Research from the World Bank shows Angola having a far greater degree of political instability and presence of violence than Alberta.
“Companies operating in Alberta don’t have to deal with landmines. That has to be considered a competitive advantage,” McGowan said. “But we only collect 54 to 58 per cent of the value of our heavy oil in royalties. We’re 25 per cent behind Norway, 13 per cent behind Russia, and more than 22 per cent behind Angola.”
Norway, which is ranked highly by the United Nations for its stability, peacefulness and infrastructure, collects about 80 per cent of the value of its resources in royalties. Russia, where police corruption and violence are cited by the U.N. as obstacles to oil extraction, collects 73 per cent. Angola, which is eighth in the world in child mortality and whose citizens boast a life expectancy of 54.5 years, collects 71 per cent.
"The negative implications of our irresponsibly low royalties are clear: we have paltry savings in the Heritage Fund and we're slashing the public services that Albertans need and value,” McGowan said. “If we didn't give away our resources, we would be doing much, much better."
The research, which was presented to the Energy Minister in April 2011, is included in the government report “Oil Sands Fiscal Regime Competitiveness Review.” The report includes a comparison of Oil Sands and Conventional Oil Government Share, which is a measurement that includes corporate taxes, royalties and other government fees.
AFL Backgrounder: Oil Sands Royalties
-30-MEDIA CONTACTS:
Gil McGowan, President, Alberta Federation of Labour at 780-218-9888 (cell)
Olav Rokne, AFL Communications Director at 780-289-6528 (cell) or via email [email protected].
Media Advisory: AFL to release heavy-oil royalty comparison report
Despite political instability, Angolans get more for their oil than Albertans
CALGARY - Albertans are getting less for our heavy crude oil than other nations with comparable resources, according to Alberta's Department of Energy.
In a report obtained by the Alberta Federation of Labour, government analysts compared royalty and tax rates for heavy crude oil and found that Alberta charges significantly less for their resource than other nations with comparable heavy crude such as Norway, Russia and Angola.
“Alberta’s royalties are out of line with the stability, the infrastructure and educated workforce that oil companies can expect in the province,” AFL president Gil McGowan said. “Unlike Angola, oil companies operating here don’t have to deal with 20 million landmines. That has to be considered a competitive advantage.”
"The negative implications of our irresponsibly low royalties are clear: we have paltry savings in the Heritage Fund and we're slashing the public services that Albertans need and value,” McGowan said. “If we didn't give away our resources, we would be doing much, much better."
Media Availability
Who: Alberta Federation of Labour President Gil McGowan
Where: Niagara Room, Ramada Hotel Downtown Calgary, 708 – 8th Avenue SW, Calgary, AB
When: Thursday, Mar. 28 at 10 a.m.
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CONTACT: Olav Rokne, AFL Communications Director at 780-289-6528 (cell) or via email [email protected].