Where's a Canadian Hugo Chavez? -- Yoshie <http://www.canadianbusiness.com/shared/print.jsp?content=20070212_85147_85147
Over a barrel Andrew Nikiforuk
From the February 12, 2007 issue of Canadian Business magazine
. . . . . . . . . . . . . . . . . . . . The Royalty Ruckus Ever since oil prices catapulted beyond US$50 a barrel, oil-producing nations have either raised their royalties or nationalized the resource. But not Alberta. In 1996, the provincial government introduced a standard 1% royalty regime that predictably resulted in an explosion of industry investment and corresponding infrastructure woes. The bargain-basement royalty regime, which has been roundly criticized by citizens but defended by industry, remains at 1% until a project has recovered the cost of construction. Cost overruns also delay any increases. Even the Canadian Association of Petroleum Producers, a defender of low royalties, ranks the tarsands regime in competitiveness as 79th out of 324 world royalty regimes. (In contrast, Alberta's conventional oil royalties rank somewhere between 209 and 258 out of 324.) The CIBC's Rubin doesn't think Alberta's royalty giveaway can last much longer. He points out that Venezuelan president Hugo Chavez "had a similar subsidy for the Orinoco tarsands," but quickly abandoned it given the economics of oil prices. Alberta's current payout also applies to bitumen rather than upgraded oil. The general price for bitumen (a product with an ill-defined market value) is generally half of that posted for West Texas Intermediate, a fact most Albertans don't recognize. "Small wonder we are seeing so many oilsands companies proposing upgraders," Ian Urquhart, a University of Alberta political scientist, noted at a public meeting on the tarsands last year. "They will pay royalties on bitumen and then sell the final product at roughly twice the price." Although Alberta's generous royalty system has increased corporate income at an annualized rate of 42% between 1999 and 2006 for a total increase of 440%, it has not enriched provincial coffers. According to the Pembina Institute, Alberta tarsand royalties declined by 32% between 1996 and 2005. Alberta's new premier, Ed Stelmach, has promised a full and transparent review of the outdated royalty regime this year. And few doubt that the province will eventually insist on a higher and fairer share of tarsands wealth. "But even with a more aggressive royalty structure, Alberta remains company-friendly," says Rubin. "The companies have no other place to go." -- Yoshie
