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Ralph Klein has gone and it is time to retire Ralph's World. Thanks to all of you who have supported this venture by contributing material and through your comments. It has been fun.
Should we get another blog underway? Let me know your thoughts by e-mailing me at johnnyslow@gmail.com.
John Slow
January 1, 2007
Saturday, April 10, 2004
Royalty Holiday for Tarsands Projects
The Klein government brought in the "generic royalty regime" back in 1996 to encourage oilsands development. It provided oilsands developers pretty much a royalty holiday until their cost were recovered. At that time, their royalty fee to the Alberta government would jump from 1% of net revenues to 25% of net revenues. According to an article in the Edmonton Journal by Graham Thompson on April 8, 2004 this currently costs the Alberta treasury about 1.4 billion dollars a year in royalty income.
Many people (click here) have questioned whether Premier Klein needed to be so generous with our money in order to incent these companies. We'll never know. However, there are two important questions that need to be answered if Albertans are to feel confident that the Klein government isn't giving away the store today.
First, why do we the taxpayer have to pick up the cost of massive cost overruns in the construction of plant expansions. The overrun on Syncrude's latest expansion is anticipated to $2.1 billion over the planned cost of $5.7 billion dollars. That's a 36% planning error. Syncrude should fund their bad planning out of company profits, not out of royalties that belong to Albertans.
Secondly, what controls does the Alberta government have in place to make sure that costs are properly allocated between expansion projects that are eligible for the 1% royalty holiday and new projects that have to pay royalties at 25%. For example, according to a recent story in the Calgary Herald, Suncor's chief executive Rick George picked up $2.35 million dollars in salary and bonuses last year. What proportion of this was expensed against expansion projects (1% royalty) vs. new projects (25% royalty). And his salary is just a minute portion of Suncor's expenses which need to be allocated.
Energy Minister Murray Smith is currently discussing with Suncor whether the 1% or the 25% royalty applies for their Firebag project. Hopefully when he resolves this, he will answer these two critical questions to the satisfaction of all Albertans.
Many people (click here) have questioned whether Premier Klein needed to be so generous with our money in order to incent these companies. We'll never know. However, there are two important questions that need to be answered if Albertans are to feel confident that the Klein government isn't giving away the store today.
First, why do we the taxpayer have to pick up the cost of massive cost overruns in the construction of plant expansions. The overrun on Syncrude's latest expansion is anticipated to $2.1 billion over the planned cost of $5.7 billion dollars. That's a 36% planning error. Syncrude should fund their bad planning out of company profits, not out of royalties that belong to Albertans.
Secondly, what controls does the Alberta government have in place to make sure that costs are properly allocated between expansion projects that are eligible for the 1% royalty holiday and new projects that have to pay royalties at 25%. For example, according to a recent story in the Calgary Herald, Suncor's chief executive Rick George picked up $2.35 million dollars in salary and bonuses last year. What proportion of this was expensed against expansion projects (1% royalty) vs. new projects (25% royalty). And his salary is just a minute portion of Suncor's expenses which need to be allocated.
Energy Minister Murray Smith is currently discussing with Suncor whether the 1% or the 25% royalty applies for their Firebag project. Hopefully when he resolves this, he will answer these two critical questions to the satisfaction of all Albertans.
