Friday, October 26, 2007

The 5 Rs: Royalties Raised. Report Recomendations Rejected.

Somewhat predictably, Stelmach has compromised with the oil industry on the royalty review. He'll leave half a billion dollars on the table each year and delay the changes until 2009 but there will be no grandfathering of existing deals and the rates will be going up - something the government Stelmach was a Cabinet Minister in refused to do despite all the evidence that changes needed to be made [someone in the Liberal research bureau needs to dig up an actual figure of how much money has been pissed away and then ram it out there time and time again during the next campaign].

Whenever a politician compromises like this, it will either be seen as a brilliant tactical move, or he'll be attacked for indecision on all sides. Honestly, I have no idea how this one will be spun and, really, it's all about the spin now. I would have personally liked to have seen the entire report implemented since that's what the experts recommended. Andrew Coyne has a non-conventional alternative for anyone interested in the topic of royalty rates (and who isn't interested in that topic?). Another outside the box idea I really liked was to bring in a carbon tax equivalent to the total royalty rise (1.4 billion...2 billion...whatever number you want) so that there's an incentive for the oil industry to become more environmentally efficient.

As for the decision (or non-decision)? Historians will either be calling this the "pension moment" that saved Stelmach's government or the beginning of the end of a 36 year dynasty. And without the results of the next election in front of me, I'm really hesitant to predict which way it will play.

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6 Comments:

  • You make remarks about indecisiveness yet you issue a call for more data before analysis!
    You're such a pollster.

    By Blogger Kyle G. Olsen, at 1:06 AM  

  • The middle in this case being at the 75 percentile.

    And speaking of indecisiveness I can see the PC's and the NDP gaining on opposite sides of this, but Taft's month with the finger in the wind left the impression that he would have played to the galleries if the gov't hadn't eased off on natural gas side. Does he want to go easier there and heavier on oil and bitumen to make the $2B? No one knows. And now no one cares.

    By Blogger anonymous, at 10:28 AM  

  • The NDP want a 90% increase and to start nationalizing the industry. I don't think anyone in Alberta sees them as a viable alternative. Given that their poll numbers, and byelection results have indicated a collasped and they are under the greens, this is a hail mary pass on their part.

    By Blogger Kyle G. Olsen, at 12:41 PM  

  • I think it's a pretty reasonnable compromise, and some times it's okay to back down. Besides it's not like Alberta is starving at the hands of tight fisted federal coughers. They were given funds during this huge expansion and they chose to use it for other things besides basic infrastructure, and it's the third largest GDP percapita in Canada

    By Blogger Abdul-Rahim, at 12:46 PM  

  • Stelmach's proposal is actually a lot better than than the commission's report in that it recognized the deficiencies in the the commission's report in the natural gas area, and he proposes a much simpler and straightforward increase in oilsands taxation.

    This proposal is reasonably close to being as tough as the commission report.

    I think Taft should endorse Stelmach's proposal (because it is a good proposal), and focus more on the reforms required to make sure the royalties are actually properly collected.

    One shouldn't necessarily always oppose for the sake of opposing. Alberta is getting a lot of outside criticism for this proposal for being too tough. It would be good for Alberta for Stelmach and Taft to actually stand together.

    By Blogger whyshouldIsellyourwheat, at 9:27 PM  

  • “Alberta is getting a lot of outside criticism for this proposal for being too tough.”

    Actually, Alberta is the laughing stock of the world. Stelmach’s proposal doesn’t even match the modest recommendations of the panel.

    In NL, Danny Williams negotiated an equity stake in the Hebron project. The Saudis had the temerity to nationalize the American and British subsidiaries.

    However, Alberta is known as being business friendly. BTW, here’s a quote from an Alberta real estate forum.

    “Daniela - I'll give you a serious and informed answer, but it's also one that is heavily slanted by personal opinion.

    I worked in the oil industry in Calgary for 20+ years in senior financial positions.

    Frankly, it's an inside joke about how ridiculously light the royalty structure is (and has been) in Alberta over the past several decades. Alberta advantage? You have no idea how disadvantageously your government has actually treated you.

    "Bozo years" are how one Globe & Mail business columnist recently referred to the years that Klein was in power. That's putting it mildly.

    The joke of a royalty structure in Alberta is the tip of the iceberg. Environmental controls, water useage, drilling site clean-up bonds - all of these things are even more generous to the industry than you'd even find in Texas (the home of Mr. GW Bush) or Oklahoma.

    "Alberta Advantage" - it's beautiful for very, very few of us top insiders. I'm retired at under 50 with several million in oil company largesse. Of course I left there so I don't have to worry about sour gas wells on the Calgary city limits or coalbed methane production poisoning the water table 20 years from now - how's that Alberta Advantage working for the rest of you?

    Of course the oil industry is going to huff and puff about how they'll close up shop if royalties increase. Yeah sure. All you have to do is sit with a couple of investment bankers when they pitch an oil and gas play - the first thing off their lips is how "friendly" the regulatory environment is in Alberta. So while they brag about the royalty structure to their investors - they turn around and plead poverty to the voters and regulators.

    Hey, I've seen enough of those >$100 million dividend cheques going out to foreign shareholders. Alberta Advantage? Advantage goes to oil company execs - but you - you still pay what? $264 every couple of months for Alberta Healthcare coverage? Still waiting for schools and hospitals to be built? Some advantage.”

    By Blogger JimTan, at 12:03 AM  

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