ALF V1

Alberta Premier Alison Redford, desperate to cut costs amid a ballooning deficit, is angering the very labour groups she coveted for support during her leadership bid and last year's election.

The province's teachers on Tuesday joined a growing number of groups expressing frustration with Ms. Redford's Progressive Conservative government, dismissing the latest contract offer by the province as a "thinly veiled threat" to roll back salaries and reduce staff.

"Teachers do not respond well to ultimatums," said Carol Henderson, president of the Alberta Teachers' Association, which represents the province's 42,000 teachers.

She said the offer, which includes wage freezes, fails to address workloads adequately. She called it "unacceptable" and urged teachers to go back to the bargaining table with Alberta's 62 school boards to find labour peace at the local, rather than provincial, level.

The Tory government is scrutinizing teachers, doctors and civil servants as it prepares to release a very tight 2013-14 budget on March 7. Facing a deficit of $3.5-billion to $4-billion this fiscal year – about four times bigger than projected – the government is looking to pinch every penny it can.

In its third-quarter update last week, the province announced a three-year salary freeze for public-sector managers starting April 1 to save about $54-million. The government also said it would cut the number of managers by 10 per cent over the same period.

Alberta Health Services, which manages health care, told its staff to brace for austerity. The University of Calgary has said enrolment at its medical school would be limited to 155 spots, down from 170, because it expects the budget to slash funding. The fast-growing province already has a shortage of physicians and is stuck in long-running labour talks with doctors.

"It seems like the Redford government is preparing to pick an unnecessary fight," said Gil McGowan, president of the Alberta Federation of Labour. "If there's any province in Canada that can afford quality public services, it's Alberta. The sky is not falling."

Mr. McGowan said Ms. Redford appears to have forgotten the new constituency – teachers, nurses and public sector workers – that propelled her to a massive majority last April, and warned of labour strife if the province doesn't sort out its revenue problem.

"If they think they can return to Klein-style cuts or rollbacks, then they've got another thing coming," he said.

This month, Alberta Medical Association president Michael Giuffre, who represents about 10,000 physicians, issued a letter accusing Ms. Redford of making "inaccurate and misleading" public comments about the province's doctors. He highlighted a particularly touchy topic: pay.

Dr. Giuffre wrote that doctors are paid 14 per cent more than the national average – not 29 per cent, as the government suggested – and noted that salary also covers the costs of running an office in a province where space and staffing are expensive.

"The tenor of your comments vilifies Alberta's physicians and creates an environment that will poison efforts to recruit and retain doctors in the future," he wrote.

He also said funding cuts will have "serious and negative" impact on health care.

"Some medical practices in Alberta will no longer be viable; offices will close and patients will be without care," he added.

Negotiations with doctors are continuing with a facilitator after almost two years, but there's no deadline for a deal. Health Minister Fred Horne enraged doctors in November when he attempted to force a contract that included an overall raise, cost-of-living adjustments over three years, as well as a lump-sum payment of 2.5 per cent of the previous year's billings that would run through 2016. He revoked the offer to head back to the bargaining table.

"There was an end of February deadline, and then that was extended to as soon as possible once the budget comes out," said Bart Johnson, a spokesman from Mr. Horne's office.

Last week, Alberta Education Minister Jeff Johnson offered the teachers and school boards a four-year contract with a wage freeze for the first three years, followed by a 2 per cent hike in the final year. He also dangled cash incentives, including 1 per cent of their salary in each of last two years of the deal if an agreement is reached by the end of February.

Otherwise, he warned of the "possibility of salary rollbacks" and expressed his desire to "minimize as much as possible reductions in teaching staff."

The ATA had offered a four-year deal with salary increases at 0, 0, 1 and 3 per cent, and provisions around working conditions, but Mr. Johnson rejected it. On Tuesday, he said he was disappointed the teachers turned down his latest offer, which he said would ensure labour and cost stability.

Jacquie Hansen, president of the Alberta School Boards Association, said the minister's recent offer has "some merit" as well as "some concerns," but her organization recommended boards ratify it. The previous five-year deal with the teachers and boards ended last August.

The Globe and Mail, Tuesday, Feb. 26, 2013
Byline: Dawn Walton

Report says Alberta will be upgrading 26 per cent of bitumen by 2025

EDMONTON - A labour group on Tuesday urged a government committee to support construction of new upgraders to stop oil conglomerates who want to "rip and ship" Alberta's resources.

The Standing Committee on Alberta's Economic Future also heard from an industry group that said market forces alone should decide whether a new upgrader is necessary, and from a project proponent who would benefit from provincial support.

The committee is trying to decide whether the province should renew its commitment to the Bitumen Royalty in Kind Program, or BRIK, in which the province forgoes royalties in favour of bitumen and then uses that bitumen to feed upgraders.

Alberta Federation of Labour president Gil McGowan told the committee that upgrading bitumen in Alberta should be a condition of resource development, not an option, because it creates jobs and adds value in Alberta.

"It is our resource and it is we, the citizens of Alberta, who should be seizing the value opportunity, not some foreign-based energy giant," McGowan said. "It may make all sorts of sense ... for Exxon and Sinopec to rip and ship our raw resources, but just because it makes sense for them, it doesn't mean it makes sense for Albertans."

McGowan said Alberta has traditionally upgraded roughly two-thirds of its bitumen, a figure that will drop to 47 per cent by 2017, according to the Energy Resources Conservation Board. He said an independent consultant's report prepared for the province estimated that by 2025, Alberta would be upgrading just 26 per cent of its own bitumen.

Government reports obtained through freedom of information requests show exporting raw bitumen captures 35 per cent of the value, McGowan said, while upgrading to synthetic crude captures 70 per cent of the value and refining to diesel and jet fuel nets 100 per cent of the value.

"At the same time, there is compelling evidence that moving up the value ladder will also generate more revenue for government to help pay for things that Albertans need, like health care or education," McGowan said.

The BRIK program was developed in 2007, one year after former Premier Ed Stelmach famously said "shipping raw bitumen is like scraping off the topsoil, selling it and then passing the farm on to the next generation."

Stelmach pledged Alberta would upgrade 72 per cent of its bitumen by 2016. In May 2010, the province announced the first BRIK-backed upgrader would be built by North West Upgrading northeast of Edmonton.

The province initially backed a $6.6-billion refinery proposed by Alberta First Nations Energy Centre, but pulled support in February 2012. Teedrum president Ken Horn said the BRIK program could help make the First Nations refinery a reality.

"What is being considered in this room today is whether to introduce a second round of brick barrels under a request for proposals," Horn said, highlighting the economic benefits of the projects. "(The province is) facing a lot of challenges. ... These particular projects could yield a tremendous amount of money for the Alberta government."

Neil Shelly, executive director of Alberta's Industrial Heartland, said "overall, we think (BRIK) is a great long-term strategy for Alberta.

"It helps diversify our markets, it provides long-term stability in the future and it's definitely the role of government. When industry acts, they're acting on behalf of an individual company," Shelly said. "What may not make sense to an individual company may make sense to the province as a whole."

Emilson Silva of the University of Alberta School of Business said he believes the North West Upgrader should go ahead but doesn't think the market will support a second BRIK-backed upgrader.

Martyn Griggs of the Canadian Association of Oilsands Producers said the organization thinks BRIK is a good program but won't comment on whether implementing it is the right political choice for Alberta.

Patricia Nelson, vice-chair of the In Situ Oilsands Alliance, said if building an upgrader makes economic sense, the industry will do it.

"If it doesn't make sense, they will not. And I think you need to have some faith. We've had some pretty good ... trends with industry players here in Alberta making this a world-class place for energy development," Nelson said.

"So keep the faith."

The committee is expected to table its findings on April 30.

The Edmonton Journal, Tuesday, Feb. 26, 2013
Byline: Karen Kleiss

Speaking Notes

Gil McGowan, President

As elected officials from across the province, you all know that the majority of Albertans want to see more upgrading done within our borders.

You’ve seen the polls. And you’ve heard directly from your constituents.

In their hearts and in their guts, Albertans feel a strong need to move up the value ladder.

Albertans are saying “yes” to adding value and “no” to sending high-quality, high-paying jobs down the pipeline to places like the US Midwest, the US Gulf Coast and, in the future, to China.

The wishes and preferences of Albertans on this issue are clear.

But, we all know that public opinion isn’t enough. In order to become a reality, upgrading also has to pass the economic test.

On that score, the power players in the oil industry are on entirely different page than ordinary Albertans.

They say the numbers don’t add up for Alberta-based upgrading.

They put on their longest faces and sadly report that we have no choice but to get comfortable on the lowest rung of the value ladder.

They say that the case is closed.

But we at the AFL aren’t buying it.

I’m here today to challenge the industry’s conventional wisdom.

I’m here to say that the industry power players are wrong…and that the majority of supposedly ill-informed ordinary Albertans are right.

I’m also here to thank Premier Redford…but also to take her to task.

Albertans should thank her for drawing wide public attention to the whole concept of the differential between the price that’s paid for conventional oil and the price we get for bitumen.

The premier is right when she says that the differential is incredibly important to the future of the Alberta economy.

But she’s dead wrong when she says that a widening differential is a disaster for our province. The truth is that a wider differential dramatically improves the economics of upgrading and presents us with an opportunity to do exactly what they majority of Albertans want us to do – and that is, move up the value ladder.

To put it another way, the so-called bitumen bubble that has been inflated by the widening differential has a very significant silver lining. And if the goal of this committee and this government is to develop effective public policy, it’s a silver lining that cannot be over-looked or ignored.

For those of us in Alberta’s labour movement, the need for our policy makers to see and seize the opportunity presented by the widening differential is great. The need for policy leadership is great because, as a province, we are in the process of tumbling down the value ladder, rather than climbing up it.

This slide shows the reality we’re facing today. Throughout the 80s, 90s and well into this decade, we normally upgraded about two-thirds of our raw bitumen to synthetic crude. Former Premier Stelmach promised that his government would ensure that 70 per cent would be upgraded within the province. That’s why he established the BRIK program. But we’re moving in the wrong direction. Today, we upgrade only 58 per cent and the ERCB projects that by 2017, that figure will drop to 47 per cent.

Even worse, a report prepared last for the government by the consulting firm Wood MacKenzie projects that by 2025 Alberta will be upgrading only 26 per cent of our bitumen.

To be clear, no one is talking about shutting down existing upgrading or refining facilities. They’re all very, very profitable. In fact, there isn’t an upgrader or refinery in the country that isn’t making money hand over fist. Instead, the problem is that – with the notable exemption of the Northwest Upgrader and refinery – no new upgrading capacity is being added in our province. Virtually all of our province’s new oil sands production is going to be shipped out of the province in raw form.

Why is this a problem? It’s a problem because by shipping our bitumen raw, we’re letting literally thousands and thousands of good jobs slip through our fingers.

A single upgrader employs up to 2,000 people in direct operations positions. It also provides millions of man-hours of employment each year for construction workers doing regular maintenance and turnarounds.

 In addition, as the Conference Board of Canada has pointed out, upgraders and refineries have incredibly long supply chains – so the spin-off affects to suppliers and local businesses are huge.

And these are temporary, transitory jobs in construction. These are long-term, stable, family-sustaining, community-building jobs. If you don’t build the upgraders and refineries, you don’t get these jobs – it’s as simple as that.

Our federation, working with the Communications, Energy and Paperworkers Union, has estimated that if the volume of diluted bitumen slated to go down the Keystone XL pipeline were instead upgraded in Alberta before being exported as synthetic crude, it would create as many as 18,000 permanent, direct and indirect jobs.

If the bitumen slated for the Northern Gateway pipeline was upgraded here and shipped as synthetic crude, it would create 26,000 jobs.

Those are numbers provided by economists working for the labour movement. But for our purposes today, I want to draw your attention to work done by other economists…in particular, work done by economists and energy experts working for the Alberta government itself.  

We at the AFL do a lot of FOIP searches…and we recently did a search on reports conducted or commissioned by the government on the subject of upgrading.

The search netted about 8,000 pages of documents. But there were two that really stood out, both of which we have included in your kits.

The first is entitled “Alberta’s Value Added Oil Sands Opportunities and Bitumen Royalty in Kind.”

It includes this slide, which shows that when you export bitumen in raw or diluted form, you capture about 35 per cent of the value chain. But if you upgrade that same bitumen to synthetic crude and export that product, you capture 70 per cent of the value chain. And if you move even higher up the chain, to products like gasoline, diesel, jet fuel and petrochemicals, you can essentially capture 100 per cent of the value chain.

At the same time there is compelling evidence that moving up the value ladder will also generate more revenue for government to help pay for things that Albertans need like health care or education or which can be saved for future generations.

For example, just a few months ago, Ian McGregor from Northwest Upgrading told this committee that if his very small refinery had been in operation last year, it would have generated approximately $500 million more in revenue for the government than they got by allowing the bitumen to be exported raw. And that’s on a volume of 37,500 barrels per day…which is tiny compared to overall production from the oil sands.

So that’s what we stand to lose if we don’t find a way to arrest our province’s headlong tumble down the value ladder. Thousands of jobs. Millions, perhaps billions, in public revenue. And the difference between 35 per cent of the value chain and 70 per cent.

Of course, the skeptics will say – and have said – that the numbers just don’t add up.

And for a few years – just a few (between 2009 and 2011) – they didn’t. But they do now.

To illustrate my point, I’d like to draw your attention to the second very important document that we received as a result of our FOIP search.

This one is entitled “Oil Sands Fiscal Regime Competitiveness Review.” It comes to a number of very interesting conclusions about royalties (it shows we are not getting a fair share for the sale of our collectively owned resources) and carbon taxes (it shows that there is little to be feared from a carbon tax and actually something to be gained).

But for our purposes, I want to focus on the report’s findings on upgrading.

Basically, it says that there were two factors undermining the economics of Alberta-based upgrading between 2009-2011. The first was the spike in the cost of the oil sands related construction and the second was the narrowing of the differential between world oil prices and the price for bitumen.

Like many, many other studies I’ve seen this one concluded that the high cost of construction was a direct result of the pace of development. Too many projects, approved and under construction at the same time were undermining productivity and driving up costs.

On the differential side, the study points out that, contrary to the arguments presented and repeated recently by the premier, that a relatively wide differential is nothing new and nothing to be afraid of. In fact, the study shows that the differential has hovered in the 25-30 per cent range for most of the past two decades.

The study also shows that wider spread between conventional and oil prices and bitumen prices is not only good for Alberta-based upgrading, it’s our biggest competitive advantage.

Take a look at this slide. What it shows are the break even points for SAGD, mining and integrated projects at different differential and price levels. Look closely. What it shows is that projects with upgraders are very economic unless the differential gets narrower than 15 per cent. On the other hand, the viability of SAGD operations without upgraders plummets as the differential gets wider.

The picture is similar in the next slide, also from the same report. What this one shows is that upgraders are entirely viable in the current price and differential climate.

Here’s the report’s conclusion:

“Despite the fact that adding upgrading capacity makes less economic sense in today’s market (2011, when the differential was 15 percent), our sensitivity analysis suggests an integrated upgrader serves as a hedge against volatility of the light-heavy differential.”

Did you hear that? Upgraders profitable when the differential is above 25 per cent AND they are a responsible hedge against volatility in the light-heavy differential. They’re profitable over a greater range of market scenarios than extraction-only projects.

All this talk about differentials and sensitivity analysis sound confusing. But it’s actually really simple. Low bitumen prices are actually good for us because they allow our upgrader to buy their feedstock low and sell their refined products high. In fact SCO often trades at a premium to WTI priced conventional oil.

So that’s our question for the government as the steward of our collectively-owned resources: why shouldn’t we buy low and sell high? Why sell the world products that fetch a higher price and keep the jobs for ourselves?

That leads me to our recommendations:

First, we need to see the widening differential not as a threat, but as an opportunity.

Second, we need to stop chasing the mirage of price parity between bitumen and conventional oil. The differential is not the result of lack of market access. It the natural result of bitumen’s lower quality.

Do you remember the old Russian Ladas? The fact that they couldn’t get the same price for one of those hunks of junk as GM could get for a Cadillac was because they lacked market access. It was because their product was junk. We face a similar problem with bitumen. It may not be junk, but it’s not conventional oil. So instead of chasing the impossible dream of getting world price for our sub-par product, let’s upgrade and sell that higher-value product. The only way to get Cadillac prices is to sell a Cadillac product.

Third, we need to set a more reasonable pace for development in the oil sands. Unrestrained pace is driving up costs and higher costs are one of the factors leading companies to opt for the cheaper, extraction-only projects. But failing to set a more reasonable pace of development, as Peter Lougheed suggested, we’re pricing ourselves out of the market for the kind of value-added projects that Albertans want and which would be better for our economy over the long term.

Fourth, we need to make upgrading a condition of development, not an option. By leaving these important decisions entirely in the hands of largely foreign-based multi-national energy corporations, we’re ignoring Lougheed’s advice to act like owners. Even now that the numbers do add up for Alberta-based upgrading, these companies are not investing in value-added projects because have their own, existing refining plants in the US or in China. They see the money that can be made by buying our bitumen low and shelling the refined product high. But it’s our resource and it is we, the citizens of Alberta, who should be seizing the value opportunity, not some foreign based energy giant. It may make all sorts of sense from a private-profit point-of-view for Exxon and Sinopec to rip and ship our raw resources. But just because it makes sense for them, doesn’t mean it makes sense for Albertans, who own the resource.

Fifth, we need to expand the Bitumen Royalty In Kind program. It’s a good program, but we can’t build our provinces energy program with just one BRIK.

Finally, we need to be bold and build on Peter Lougheed’s legacy. Energy companies like Exxon and Sinopec cannot be counted on to make development decisions that are in the best interests of Albertans who own our resources. The approach that Lougheed took to build our petrochemical industry is actually the one we should take today with bitumen. He set a clear goal of building a value-added industry. He understood that the government, as the steward of the resources, had to be a participant in the market, not just a spectator. He introduced regulations about what could be exported and couldn’t be. He used public money to build critical infrastructure like straddle plans to support a value-added industry. And he created a public energy corporation to enter into joint-venture projects with reluctant private-sector investors. And it worked.

In the end, all we’re asking the government to do is to see and seize the opportunity that’s in front of us.

And we’re not asking you to do anything that previous Progressive Conservative governments haven’t already done. We are asking you to lead like Lougheed.

Standing Committee on Alberta’s Economic Future
review of the BRIK (Bitumen Royalty-in-Kind) Program
Committee Room A
4^th Floor – Legislature Annex Building
Edmonton, AB
Tuesday, February 26, 2013

AFL to highlight advantage of in-province upgrading in presentation to Redford Government

Edmonton – Alberta Federation of Labour president Gil McGowan will promote the benefits of the bitumen bubble on Tuesday.

McGowan, who will be presenting to the Standing Committee on Alberta's Economic Future about the Bitumen Royalty In-Kind (BRIK) program, says that the bitumen bubble is an opportunity to create more in-province upgrading projects.

The BRIK program, which incentivizes in-province upgrading, is under the government's microscope this week as they consider how they intend to continue or expand it. McGowan, who will be speaking to the committee from 1:00 p.m. to 1:45 p.m. on Tuesday, will be available to media immediately after his presentation.

“This is the time to be investing in the long-term prosperity of this province,” Alberta Federation of Labour president Gil McGowan said, noting that the program has helped create capacity to upgrade up to 75,000 more barrels per day in Alberta. “75,000 barrels per day may sound like a lot, but it’s really little more than a drop in the bucket. Building Alberta's economic future requires more than just one BRIK.”

Under the BRIK program, the province takes its royalty payments from producers in bitumen, the thick, heavy oil squeezed out of the oilsands, rather than in cash.

“The governments own internal documents indicate that there is $72 billion in refining value being lost as a result of the current focus on raw bitumen exports,” McGowan said. “This is money the Alberta taxpayer could recover if we had an upgrading strategy. I'm glad to have been invited to speak on this subject — it gives me hope that the government might be taking in-province upgrading strategies seriously.”

Several times over the past decade, and under the leadership of three premiers, the Government of Alberta has promised to ensure at least 2/3 of Alberta's bitumen is upgraded in the province. At present, barely half of our bitumen is upgraded in-province, and the percentage is decreasing.

“The latest government projection is that we will only be upgrading 26 per cent of our bitumen by 2020,” McGowan said. “Something needs to be done to turn this ship around.”

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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].

When Peter Julian visited his in-laws in Shandong province in 2011, he was struck by skies which, depending on weather, either were grey, or grey and wet.

The New Democratic Party MP for Burnaby-New Westminster recalls, on sunny days, blue skies were absent with the sun appearing only faintly as a faint yellow blob behind thick haze.

As NDP energy and natural resources critic, Julian lately has been thinking a lot about greenhouse gas emissions.

He's a crusader against both the Northern Gateway pipeline and a tanker port on B.C.'s north coast.

Further, he and his party want the energy debate in this country shifted - away from how Canada can export oil-sands bitumen to China from a west coast port - to how this country can generate wealth by augmenting green energy investments and refining more of its petroleum.

Julian says the Harper government is too focused on maximizing profit from the oilsands, missing the boat on green job creation.

International tallies suggest he has a point. Conservatives have not enthusiastically embraced what many consider to be the next generation of jobs.

Those jobs include manufacturing, installing and operating renewable energy technologies like wind and solar power; running public transit systems; designing and constructing green buildings and retrofitting older structures.

Indeed, Conservatives in 2011 cancelled a popular eco-Energy Retrofit program that provided grants for making homes more energy efficient.

According to the Vienna-based International Energy Agency, the world relies on renewable sources for around 13 per cent of its total primary energy supply.

Canada's renewable energy sector generates 17 per cent of the country's primary energy supply, according to a federal website. But, of course, that figure is skewed upward by a domestic bounty of hydro power.

In a global list of top-10 renewable energy investors, Canada is absent, with China, the U.S. and Germany ranking as the world's green energy big shots.

The list was part of a European study that, even so, categorized Canada as "a significant investor," with $5 billion invested in 2011, ahead of Australia and New Zealand.

But in a report, titled Falling Behind, the Toronto-based Blue Green Canada environmental group reports, if Canada did no more than match U.S. per capita investment, "an additional $11 billion would have been earmarked by the Canadian government for clean energy."

The Alberta-based Pembina Institute says Canada's green entrepreneurs are being thwarted both by a lack of stable government policy and difficulty accessing cash.

While the renewable energy sector still has a fair share of detractors - folks turned off by giant wind turbines and companies that have gone belly up after gobbling government grants - Julian believes that renewables are an unstoppable and wholly viable trend for a world that badly needs to wean itself off fossil fuels.

The NDP, joined by Liberals and Greens, also wants more refining of oil within our borders.

The Alberta Federation of Labour asserts only half of bitumen harvested in the province is now being upgraded. In a report, titled The Bitumen Glut Has A Silver Lining, the federation argues, instead of exporting raw bitumen, it makes sense to capture greater value and jobs by refining and upgrading the product. A single upgrader, it says, employs 2,000 people.

Unquestionably, the oilsands are a giant asset for this country. They'll create 905,000 jobs across Canada by 2035, says the Canadian Association of Petroleum Producers.

But, as the push for a greener world grows ever more intense, Canadians will want their governments to get creative. China's polluted skies are a potent harbinger.

The Windsor Star, Thursday, Feb. 21, 2013
Byline: Barbara Yaffe

A $2.4 billion drop in resource revenue has put Alberta on pace for a deficit of between $3.5- and $4 billion — one of the highest deficits in history, Finance Minister Doug Horner revealed Tuesday in the province's third quarter fiscal update.

The sea of red ink will be four times deeper than was forecast in the budget last February. The province initially predicted an $886 million deficit, but by the second quarter had increased its deficit forecast to $2.3 to $3 billion.

Now it's forecast to be $1 billion more, which will rival the $4 billion deficit the Don Getty government posted in 1986-87.

Horner blamed the ballooning deficit on the discounted price Alberta companies are getting for the heavy oil or bitumen from the oilsands, which has had a dramatic impact on royalties and taxes.

"We're seeing declining resource revenues in Alberta and that's, for the most part, a result of Alberta's market access problem," Horner told reporters at Calgary's McDougall Centre, "I know you have heard me talk a lot about the bitumen bubble. ... It is a bubble that is not going to pop any time soon and it is costing us a lot of money."

But he noted it is not just the differential between the price of Alberta heavy oil and West Texas Intermediate that is hurting the treasury, but also the higher exchange rate and lower land lease sales.

"It doesn't paint a pretty picture for the third quarter, and to be honest, it's not getting all that prettier," Horner said.

The new deficit projection doesn't include $1.1 billion the province is borrowing for the twinning of Highway 63 to Fort McMurray or the $4.1 billion already borrowed for various financial corporations and for lending to municipalities.

The sustainability fund which has covered four previous deficits has been reduced to $3.4 billion from a one-time high of $17 billion.

The flood of red ink prompted the government to simultaneously announce a three-year management salary freeze that it says will save taxpayers $54 million. Horner also announced plans to cut public sector managers by 10 per cent over the same three-year period.

While he said he didn't want to interfere in the ongoing collective bargaining, unions should take the management wage freeze as a sign of the times.

"We've been fairly consistent in saying that there is no new money," he said. "They should take that as a strong signal of what we have in mind."

The province froze MLA wages earlier this month, rejecting a one per cent cost of living increase to their $156,311 salaries.

Horner said his Conservative government has also found $600 million of in-year savings across all ministries.

Guy Smith, president of the Alberta Union of Provincial Employees, said he doesn't think the government should be blaming a $3.5 plus billion deficit on the discounted price of bitumen, which accounts for less than $1 billion of the shortfall.

"It seems rather strange that the minister of finance would tell Albertans that this is a long-term situation because it's probably not going to be," he said. "It seems to be very much a knee-jerk reaction to a situation that won't last."

Smith said Horner is obviously interfering in the collective bargaining process before it even begins and that rather than slash management jobs, he should be redeploying managers to the front lines to meet the province's rapidly growing population and its demand for more public services.

Alberta Federation of Labour President Gil McGowan said the finance minister appears to be more intent on finding scapegoats than solutions.

"It's clear they are desperate to blame anyone but themselves," he said. "It's time for the government to stop playing the blame game."

McGowan said the question Albertans should be asking is not where to cut, but why does the province have a deficit in a booming economy.

"The real cause of the problem has to do with years and years of cuts to taxes for high income earners and corporations, and years and years of royalty giveaways," he said. "It has nothing to do with how much we pay our public sector workers."

Wildrose Leader Danielle Smith said the fiscal update shows Premier Alison Redford's provincial budget is unravelling.

"We're seeing the budget was an absolute farce," she said.

She dismissed as "window-dressing" the government's plans to cut management by 10 per cent and to freeze their salaries.

Liberal critic Kent Hehr said it was folly to blame slumping oil and gas revenues for the financial problems, saying the government needs to budget more conservatively and change the tax structure.

"Everyone knows our revenue structure is broken," he said.

NDP critic David Eggen said Albertans are angry over the Tory government's bungling of the province's finances.

"They know our economy is growing," he said. "What's wrong with this government? Why did they miss the boat that's been sailing along in Alberta?"

The Calgary Herald, Tuesday, Feb. 19, 2013
Byline: Darcy Henton and Chris Varcoe

Fiscal update shows province has revenue problem, not a spending problem

Edmonton – Alberta’s fiscal update shows a government disconnected from the economy it’s supposed to manage says the Alberta Federation of Labour.

With the population booming, the economy growing and Albertans working hard, there’s no excuse for the government being unable to balance its books.  And it’s time for the government to stop playing the blame game.

“They’re spinning a doom-and-gloom story and putting the blame on markets and on public-sector workers, rather than their own bad planning.” Alberta Federation of Labour president Gil McGowan said. “Just a few weeks ago, the government singled out doctors as the cause of our budget woes. A few weeks before that, they went after teachers. There’s been talk of cutting nurses. Now they’re going after unionized government workers. They’re desperate to blame anyone but themselves.”

The update shows that province’s population grew by 2.5%, retail sales were up by 8.2%, and the province added 55,000 new jobs. Corporate profits and individual incomes were also up.

“This budget update shows that Alberta’s economy is growing, our population is booming, and they don’t have the courage to collect a fair share of revenues that will support the services needed for Alberta’s growing population,” McGowan said, noting that the B.C. government released a budget that increased corporate taxes and taxes on those who make more than $150,000. 

The budget update, released Tuesday, shows strong economic growth, growing population but lower-than-projected resource revenues. Because of this shortfall, the government announced salary freezes for management and almost $600 million less for public services.

“Reading their fiscal update and press release, you get dizzy how quickly they spin and pull a U-turn and then spin again. It’s good times, but bad times, it’s great times, but they need to cut,” McGowan said.

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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].

A $2.4 billion drop in resource revenue has put Alberta on pace for a deficit of between $3.5- and $4 billion — one of the highest deficits in history, Finance Minister Doug Horner revealed Tuesday in the province's third quarter fiscal update.

The sea of red ink will be four times deeper than was forecast in the budget last February. The province initially predicted an $886 million deficit, but by the second quarter had increased its deficit forecast to $2.3 to $3 billion.

Now it's forecast to be $1 billion more, which will rival the $4 billion deficit the Don Getty government posted in 1986-87.

Horner blamed the ballooning deficit on the discounted price Alberta companies are getting for the heavy oil or bitumen from the oilsands, which has had a dramatic impact on royalties and taxes.

"We're seeing declining resource revenues in Alberta and that's, for the most part, a result of Alberta's market access problem," Horner told reporters at Calgary's McDougall Centre, "I know you have heard me talk a lot about the bitumen bubble. ... It is a bubble that is not going to pop any time soon and it is costing us a lot of money."

But he noted it is not just the differential between the price of Alberta heavy oil and West Texas Intermediate that is hurting the treasury, but also the higher exchange rate and lower land lease sales.

"It doesn't paint a pretty picture for the third quarter, and to be honest, it's not getting all that prettier," Horner said.

The new deficit projection doesn't include $1.1 billion the province is borrowing for the twinning of Highway 63 to Fort McMurray or the $4.1 billion already borrowed for various financial corporations and for lending to municipalities.

The sustainability fund which has covered four previous deficits has been reduced to $3.4 billion from a one-time high of $17 billion.

The flood of red ink prompted the government to simultaneously announce a three-year management salary freeze that it says will save taxpayers $54 million. Horner also announced plans to cut public sector managers by 10 per cent over the same three-year period.

While he said he didn't want to interfere in the ongoing collective bargaining, unions should take the management wage freeze as a sign of the times.

"We've been fairly consistent in saying that there is no new money," he said. "They should take that as a strong signal of what we have in mind."

The province froze MLA wages earlier this month, rejecting a one per cent cost of living increase to their $156,311 salaries.

Horner said his Conservative government has also found $600 million of in-year savings across all ministries.

Guy Smith, president of the Alberta Union of Provincial Employees, said he doesn't think the government should be blaming a $3.5 plus billion deficit on the discounted price of bitumen, which accounts for less than $1 billion of the shortfall.

"It seems rather strange that the minister of finance would tell Albertans that this is a long-term situation because it's probably not going to be," he said. "It seems to be very much a knee-jerk reaction to a situation that won't last."

Smith said Horner is obviously interfering in the collective bargaining process before it even begins and that rather than slash management jobs, he should be redeploying managers to the front lines to meet the province's rapidly growing population and its demand for more public services.

Alberta Federation of Labour President Gil McGowan said the finance minister appears to be more intent on finding scapegoats than solutions.

"It's clear they are desperate to blame anyone but themselves," he said. "It's time for the government to stop playing the blame game."

McGowan said the question Albertans should be asking is not where to cut, but why does the province have a deficit in a booming economy.

"The real cause of the problem has to do with years and years of cuts to taxes for high income earners and corporations, and years and years of royalty giveaways," he said. "It has nothing to do with how much we pay our public sector workers."

Wildrose Leader Danielle Smith said the fiscal update shows Premier Alison Redford's provincial budget is unravelling.

"We're seeing the budget was an absolute farce," she said.

She dismissed as "window-dressing" the government's plans to cut management by 10 per cent and to freeze their salaries.

Liberal critic Kent Hehr said it was folly to blame slumping oil and gas revenues for the financial problems, saying the government needs to budget more conservatively and change the tax structure.

"Everyone knows our revenue structure is broken," he said.

NDP critic David Eggen said Albertans are angry over the Tory government's bungling of the province's finances.

"They know our economy is growing," he said. "What's wrong with this government? Why did they miss the boat that's been sailing along in Alberta?"

The Calgary Herald, Tuesday, Feb. 19, 2013
Byline: Darcy Henton and Chris Varcoe

The Redford government's promise to keep building Alberta despite budget woes and bitumen bubbles could lead the province to embrace alternative financing to pay for high-priority construction projects.

Premier Alison Redford and high-ranking cabinet ministers have said repeatedly since last fall they will borrow to bankroll critical infrastructure projects such as the twinning of Highway 63 to Fort McMurray.

Some of that debt could come in the form of public-private partnerships — an alternative method of building, maintaining and paying for major public works projects often referred to by the acronym P3.

"I think we've been pretty clear, we're not only going to be using P3s, but we're going to be using the capital markets for infrastructure and only when it makes financial sense to do so," Finance Minister and Treasury Board president Doug Horner said in an interview last week.

The 2013-14 budget to be delivered March 7 should add clarity. But if the province decides to use P3s to spread out construction costs, it will build on a decade of experience with the format.

Since 2003, the government has used the financing method to build large sections of Edmonton and Calgary's ring roads, as well as 41 schools and a water and sewer treatment plan in Kananaskis.

Under a P3, a government signs a contract with a private partner who agrees to design, build, maintain, and sometimes operate, the project over a period of time. That private company finances some or all of the project, and the government repays the company, with interest, over a set term of several years.

As an example, the northeast leg of Anthony Henday Drive, scheduled to open in 2016, is a $1.81-billion P3 project that will be repaid over 34 years.

Redford has made no secret of her interest in P3s. When she became honorary chairwoman of the Canadian Council for Public-Private Partnerships in November, she said in a statement she was pleased to work with the council to champion P3s across Canada.

After last week's Alberta Economic Summit, Redford described discussions related to P3s as "fundamental."

"There was much comment about the fact this isn't about incurring debt, this is about assuming risk," she said. "That these are still assets that continue to be publicly owned, but they allow us to build them in a more effective way."

Still, the subject of borrowing to pay for schools, roads or housing projects — always contentious in a province that wore its debt-free status like a badge of honour — becomes even more complicated when discussing P3s.

Advocates praise them as an efficient way of building and transferring risk from the public to the private sector. The P3 for the northeast leg of the Henday means the 27-kilometre stretch of road will be finished three years faster than through traditional channels and for $340 million less, according to the province.

Critics, however, pan P3s for their lack of flexibility and contractual secrecy.

NDP MLA David Eggen pointed to the complaints that surfaced in the first round of P3 schools that opened in Edmonton and Calgary in September 2010. Those schools, built on a standard design, faced many restrictions on how they could be used.

Alberta Education said last March they adjusted the contracts for the next round of P3 schools to allow outside groups to lease space for things like child care programs or community events.

Alberta Federation of Labour president Gil McGowan said he was disappointed to hear Redford focusing on P3s after the summit. He believes they do not provide better value for taxpayers.

"We now have more than three decades of (international) experience with P3s and what that experience shows us is that P3s are a shell game that almost never works for citizens and taxpayers," McGowan said.

"P3s are helpful to politicians in the short run because it allows them to move upfront costs for large infrastructure projects off the books in the short term, but over the long term we end up paying at least as much, if not more."

Wildrose leader Danielle Smith said P3s are simply another form of borrowing, which her party opposes in all forms. "We simply do not believe that once you start down the track of borrowing money that a government will ever stop," Smith said.

Anthony Boardman, Van Dusen professor of business administration at the University of British Columbia's Sauder School of Business, studies P3s. He said experience indicates that if a project is complicated, it may be better to keep it within government.

"Over time, what's happened is some governments are better at managing them, although there's still a fair amount of evidence we pay too much for them," Boardman said.

There are ways the government can make sure a P3 is a good fit, he said. One important step is to have an independent evaluation process looking not just at the financial impact of a P3, but also the social costs.

Governments often fail to take the social consequences of P3s into account, such as limits the arrangement might impose on community groups' use of a school building.

"That's a problem," Boardman said. "The reason why they don't is because it's not easy. But instead of doing the wrong thing because it's easy, on all projects we should devote the resources to getting it right."

The government also needs to be as transparent as possible, Boardman said.

In Alberta, the provincial government publishes more information today about new P3s than it did for the first P3s a decade earlier. Alberta Transportation's information about the northeast leg of the Henday includes a value for money report and contract information. (http://www.transportation.alberta.ca/3787.htm).

It also consults with the Advisory Committee on Alternative Financing, a panel of private-sector experts that examines the business cases for P3s and gives its opinions to Treasury Board.

Committee chairman Tim Melton, executive chairman of Melcor Development's board of directors, said P3s can be an excellent way for government to build but are not the best fit for every project.

Whether the government uses P3s, traditional bonds or cash to pay for construction, Alberta's finance minister said the province will take the advice Albertans have been giving to act more like a business when it comes to deciding how to pay for infrastructure.

"Money-in-the-mattress mentalities don't work," Horner said. "It certainly doesn't create value for future generations of Albertans.

"We have growth in this province and that makes us different than almost every jurisdiction in the country and we have to manage for that."

The Edmonton Journal, Monday, Feb. 18, 2013
Byline: Sarah O'Donnell

The Redford government's promise to keep building Alberta despite budget woes and bitumen bubbles could lead the province to embrace alternative financing to pay for high-priority construction projects.

Premier Alison Redford and high-ranking cabinet ministers have said repeatedly since last fall they will borrow to bankroll critical infrastructure projects such as the twinning of Highway 63 to Fort McMurray.

Some of that debt could come in the form of public-private partnerships — an alternative method of building, maintaining and paying for major public works projects often referred to by the acronym P3.

"I think we've been pretty clear, we're not only going to be using P3s, but we're going to be using the capital markets for infrastructure and only when it makes financial sense to do so," Finance Minister and Treasury Board president Doug Horner said in an interview last week.

The 2013-14 budget to be delivered March 7 should add clarity. But if the province decides to use P3s to spread out construction costs, it will build on a decade of experience with the format.

Since 2003, the government has used the financing method to build large sections of Edmonton and Calgary's ring roads, as well as 41 schools and a water and sewer treatment plan in Kananaskis.

Under a P3, a government signs a contract with a private partner who agrees to design, build, maintain, and sometimes operate, the project over a period of time. That private company finances some or all of the project, and the government repays the company, with interest, over a set term of several years.

As an example, the northeast leg of Anthony Henday Drive, scheduled to open in 2016, is a $1.81-billion P3 project that will be repaid over 34 years.

Redford has made no secret of her interest in P3s. When she became honorary chairwoman of the Canadian Council for Public-Private Partnerships in November, she said in a statement she was pleased to work with the council to champion P3s across Canada.

After last week's Alberta Economic Summit, Redford described discussions related to P3s as "fundamental."

"There was much comment about the fact this isn't about incurring debt, this is about assuming risk," she said. "That these are still assets that continue to be publicly owned, but they allow us to build them in a more effective way."

Still, the subject of borrowing to pay for schools, roads or housing projects — always contentious in a province that wore its debt-free status like a badge of honour — becomes even more complicated when discussing P3s.

Advocates praise them as an efficient way of building and transferring risk from the public to the private sector. The P3 for the northeast leg of the Henday means the 27-kilometre stretch of road will be finished three years faster than through traditional channels and for $340 million less, according to the province.

Critics, however, pan P3s for their lack of flexibility and contractual secrecy.

NDP MLA David Eggen pointed to the complaints that surfaced in the first round of P3 schools that opened in Edmonton and Calgary in September 2010. Those schools, built on a standard design, faced many restrictions on how they could be used.

Alberta Education said last March they adjusted the contracts for the next round of P3 schools to allow outside groups to lease space for things like child care programs or community events.

Alberta Federation of Labour president Gil McGowan said he was disappointed to hear Redford focusing on P3s after the summit. He believes they do not provide better value for taxpayers.

"We now have more than three decades of (international) experience with P3s and what that experience shows us is that P3s are a shell game that almost never works for citizens and taxpayers," McGowan said.

"P3s are helpful to politicians in the short run because it allows them to move upfront costs for large infrastructure projects off the books in the short term, but over the long term we end up paying at least as much, if not more."

Wildrose leader Danielle Smith said P3s are simply another form of borrowing, which her party opposes in all forms. "We simply do not believe that once you start down the track of borrowing money that a government will ever stop," Smith said.

Anthony Boardman, Van Dusen professor of business administration at the University of British Columbia's Sauder School of Business, studies P3s. He said experience indicates that if a project is complicated, it may be better to keep it within government.

"Over time, what's happened is some governments are better at managing them, although there's still a fair amount of evidence we pay too much for them," Boardman said.

There are ways the government can make sure a P3 is a good fit, he said. One important step is to have an independent evaluation process looking not just at the financial impact of a P3, but also the social costs.

Governments often fail to take the social consequences of P3s into account, such as limits the arrangement might impose on community groups' use of a school building.

"That's a problem," Boardman said. "The reason why they don't is because it's not easy. But instead of doing the wrong thing because it's easy, on all projects we should devote the resources to getting it right."

The government also needs to be as transparent as possible, Boardman said.

In Alberta, the provincial government publishes more information today about new P3s than it did for the first P3s a decade earlier. Alberta Transportation's information about the northeast leg of the Henday includes a value for money report and contract information. (http://www.transportation.alberta.ca/3787.htm).

It also consults with the Advisory Committee on Alternative Financing, a panel of private-sector experts that examines the business cases for P3s and gives its opinions to Treasury Board.

Committee chairman Tim Melton, executive chairman of Melcor Development's board of directors, said P3s can be an excellent way for government to build but are not the best fit for every project.

Whether the government uses P3s, traditional bonds or cash to pay for construction, Alberta's finance minister said the province will take the advice Albertans have been giving to act more like a business when it comes to deciding how to pay for infrastructure.

"Money-in-the-mattress mentalities don't work," Horner said. "It certainly doesn't create value for future generations of Albertans.

"We have growth in this province and that makes us different than almost every jurisdiction in the country and we have to manage for that."

The Edmonton Journal, Monday, February 18, 2013
Byline: Sarah O'Donnell