A royal confusion

Some of you may be aware that the premier of Alberta, Ed Stalmach was elected last year through vote splitting in the Progressive Conservative party. A while back, he decided to open the heated debate of Alberta oil royalties. (Although I kept a basic knowledge of what was going in Canada while I was studying in Europe, I'm not sure exactly when he commissioned a review of the oil royalties).

The panel that had been commissioned with reviewing the oil royalties policies released it's findings in September 2007. What a fiasco ensued. The panel found that the Alberta government had not been charging "appropriate" royalties and recommended increasing them. By how much? Well, from what I understand the increase would result to an extra two billion a year for the Alberta government. Two billion? Pretty sweet. I could do a lot with two billion. In fact, I probably wouldn't even know where to start spending. For the average citizen two billion is plenty. Ok, more than plenty. That's enough to buy multiple homes in the million plus neighbourhoods around Calgary and Edmonton. Oh, and of course, you could also purchase quite a few of those Corvette convertibles that every affluential-man-scared-of-looking-old-and-loosing-the-ladies just HAS to have. I mean, come on. Two billion? That's a tonne of money.

Anyways, real estate and Corvettes aside, the findings of the commission resulted in a fire storm. There were those who were furious with the government for "letting so much money slip away". Then there those who were furious with the government for commissioning a report that would have the audacity to suggest implementing higher royalties. Then there were those who were furious with the government for commissioning a report that was based on faulty data. And then, there were those who were furious that the findings of the royalty review report was getting more press than the "important" issues like global warming and saving the polar bears.

In the middle of the fire storm a number of companies spoke out. Some condemned the report because it uses numbers (such as the start-up costs for an oil well) based on what the costs were three or more years ago. Some condemned the report because it's implementation would mean higher production costs and lower profits. The Premier reminded Albertans to calm down. He was still reviewing the findings and would present his plan in the near future.

Well. The near future has come and gone. On Thursday Premier Ed Stalmach made what some are calling his hardest decision since coming into office. He announced his plan. Drew a line in the sand. Laid down the law. Threw down the gauntlet. Call it whatever you want. He announced how his government was going to act on the royalty review. And what a decision it was.

Basically he is going to increase royalties.

He's not increasing royalties tomorrow though. He's leaving some time for the corporate world to "adjust", a whole year. Correct me if I am wrong, but he wants to implement these royalty increases in 2009.

(Sidebar: A year? A whole year? Are you kidding me? Companies have to shell out millions of dollars just to get an oil well running and now they are supposed to factor increased royalties into their budget? Yeah. Can't imagine the oil boardrooms were sedate when that bomb hit.)

But wait - there is more... The premier is not acting on all the suggestions the commission made. In fact, instead of increasing royalties to the aforementioned two billion additional royalty dollars/year, the government is only going to increase royalties to result in 1.4 billion dollars/year. Depending on how you look at it, companies are being "saved" from paying 600 million in royalties each year or, as certain political parties would have you believe, Albertans are "loosing" 600 million in royalties/year.

What will the consequences be? Well, that depends on what happens over the next few weeks. A number of companies threatened to reduce Alberta investments if the royalties were increased. Will they? I'm not sure. In speaking with colleges at work, opinions very. Some feel the reduction of investment in Alberta will bring a slight cool down to the economy. A cool down some feel is desperately needed to bring balance and stability. Some feel the royalty hikes don't go far enough and that the Premier caved into pressure from oil companies.

How do I feel? Well, besides wishing I had taken courses in economics and petroleum so that I'd have a better understanding of the situation, I'm concerned. I do love my province. I don't want it to end up in shambles (economic or other). The lack of clear and consistent messaging from the companies that would be impacted by the increased royalties is a concern. However, so is the chest-thumping-my-way-or-the-highway attitude that seems to radiating from the provincial government. If this keeps up, the Alberta economy could loose it's title as Canada's leading economy. Prince to pauper? Wouldn't be the first time.