There’s a big uproar next door in Alberta, one that could end the Conservatives’ 36-year domination of the legislature. And one that could spill over into B.C.
The issue is oil and gas royalties, and whether the government has been selling the province’s resources off far too cheaply.
Since B.C.’s royalty rates have at least partly been shaped by the desire to be competitive with Alberta, that leaves some questions about whether the public has been shortchanged here.
It certainly looks like Albertans lost out. New Premier Ed Stelmach set up a blue-ribbon panel to review the province’s take from oil and gas resources. It reported last month, and said the government had been failing to get full value, giving the companies non-renewable resources on the cheap.
The panel recommended an immediate increase of about 20 per cent, worth an extra $2 billion a year. (The industry, naturally, is outraged.)
Things got worse for the Alberta government. The province’s auditor general released a report this month that said the government knew it could increase royalties by $1 billion to $2 billion a year without losing any economic activity, but didn’t act.
The numbers are much smaller in B.C., and the resource mix is different. Oil and oilsands aren’t a factor.
But Energy Minister Richard Neufeld has cited the need to compete with Alberta in announcing natural gas royalty cuts here. If Alberta has been under pricing the resource, then perhaps so has B.C.
The people of the provinces own the oil and gas. The government auctions the right to explore and drill on sections of land. The companies then pay a royalty on each unit of gas they produce. Effectively, they’re buying it wholesale from the public and then reselling it.
There’s no science to setting gas royalties. It’s like a used-car deal: The buyer tries to pay as little as possible, the seller strives to get as the highest price.
But there’s a difference. With a used car, the seller is usually just looking to get the best price within a week or two. He doesn’t want to stick the rusty Accord in the garage and wait a few years. (Since buyers know that, they gain some advantage).
But with nonrenewable resources - like natural gas - it’s a different story. The gas will almost certainly get more valuable as the years go by. The government can drive a tough bargain; if the energy companies don’t pay now, they might in 10 years.
And there’s an argument against selling off non-renewable resources quickly, at the expense of future generations.
But governments don’t always think long term. They need to get elected every four years. And for them, it might be worth selling the resource a little quickly to get revenue - and jobs - right now.
There’s no doubt the government has focused successfully on increasing the pace of gas production since the Liberals were elected in 2001. The measures went beyond royalty changes and included reduced regulation, road-building support and other moves to encourage companies.
The energy ministry says it constantly monitors the royalty regime to make sure that the rates are appropriate - at a level that encourages companies to invest here, not in Alberta or some other jurisdiction, but not too low.
Yet last year, when the NDP asked basic questions about the costs and benefits of some royalty cuts, it took the ministry four months to come up with information that should have been readily available if the royalties were being monitored.
Anyway, the Alberta energy ministry said it was monitoring royalties closely too.The two provinces’ royalty regimes weren’t identical, but they were linked in the name of competitiveness. If Alberta is leaving money on the table, B.C. might be too.
Fortunately, it’s easy enough to check. B.C.’s auditor general just needs to do the same kind of review his counterpart in Alberta did.The public would be well-served by the answers, whatever they reveal.
Footnote: The whole issue raises - once again - the idea of directing a share of nonrenewable-resource revenues to a heritage fund. That would reduce the incentive for governments to sell of the resource for short-term benefits and leave future generations with a pool of money to cushion the blow when the boom years are over.