Sunday, July 27, 2014

Socialized losses, privatized gains

Every megaproject conceived and executed by BC Liberals in recent years has ended with massive cost overruns, despite the predictable "on-time and on-budget" claims. Most involved contractors with foreign domiciles. Check out the Port Mann bridge project, South Fraser Perimeter Road, BC Place renovation, Vancouver Convention Centre, Sea to Sky Highway, Northwest Transmission Line, etc.

Remember claims reported by Canadian Press in February 2013,
"Premier Christy Clark's Liberal government says the development of liquefied natural gas in northern British Columbia represents a generational opportunity that has the potential to wipe out the provincial debt and eliminate the need to pay sales taxes.

"The government's throne speech delivered Tuesday -- less than three months before the start of an election campaign -- said LNG export possibilities represent a possible $1 trillion boost to B.C.'s gross domestic product over the next 30 years.

"Clark announced in the throne speech a new B.C. Prosperity Fund that could accumulate between $100 billion and $260 billion in revenues from LNG royalties and business taxes, enough to wipe out the province's current debt of $56 billion by 2028..."
Since the government's Budget and Fiscal Plan 2014/15 - 2016/17 predicts natural gas royalties about equivalent to unrecorded liabilities now owed producers, Premier Photo Op's promise of wiping out provincial debt by 2028 depends on net royalties earned in fiscal years after 2017. Since Government projects provincial debt will grow to $69 billion by 2017, that will require a contribution of $6.3 billion a year from net natural gas royalties, which is about $6.2 billion more than BC has been averaging recently.

To accumulate revenues between $100 billion and $260 billion by 2043, the last half of Clark's 30 year vision will have to produce between $3B and $17B annually. Anyone out there believe Clark's government is serious about their numbers? Were they serious when they spoke of those dreams? Of course not.

However, what they are serious about is moving into private hands billions of dollars worth of public assets, with portions drifting into the hands of friendly insiders. That means, at least,
  • larger subsidies of gas exploration and production costs,
  • further royalty reductions and waivers,
  • payment by the public for transmission and transportation infrastructure,
  • below-cost energy for LNG liquefaction facilities,
  • relief from environmental regulations involving hazardous wastes and fossil fuel production, and
  • alteration of income tax rules for accelerated write-offs and other benefits.
Multinational LNG operators want BC taxpayers to subsidize and assume commercial risks. It is a profitable strategy and one well practiced. Joseph Stiglitz, American Nobel Laureate, former chief economist for the World Bank and current Columbia economics professor says economic policies of governments are designed to transfer wealth from taxpayers to financial oligarchs. He said,
“There’s a system where we socialize losses and privatize gains. That’s not capitalism, that’s not a market economy, that’s a distorted economy and if we continue with that we won’t succeed in growing, and we won’t succeed in creating a just society.”
Without taxpayers taking on financial and environmental risks, BC's LNG industry will be nothing more than a modest demonstration project created to further BC Liberal election prospects in 2017. The world's business press reports:
International Business Times: "Russia plans to build a gas pipeline and accompanying railroad from its offshore Sakhalin Island fields, north of Japan, through North Korea to South Korea." Korea, India And Japan, Not Just China, Are Looking To Russia For Energy

Washington Post: "Russia now aims to pipe 38 billion cubic meters worth of gas to China annually. 'This is the biggest contract in the history of the gas sector of the former USSR,' trumpeted Russian President Vladimir Putin, who was on a visit to China this week." What the epic China-Russia natural gas deal looks like

Wall Street Daily: [Sinopec] "is putting its first commercial shale gas field into production much sooner than expected... That should mean China will hit its target of 6.5 bcm of shale gas production by 2015. This is a target that western energy analysts had said was unrealistic, but now it’s within sight...", China’s Long March to Shale Gas Development

Financial Times: "Chinese oil company Sinopec will put its first shale gasfield into commercial operation sooner than expected, aiming for annual production of 10bn cubic meters by 2017 as the country seeks to reduce its reliance on imported oil and gas...." Sinopec speeds up shale gas development

Reuters: "China may boast the world's largest potential reserves of shale gas but is likely to lose to Australia in the race to be second behind the United States in bringing significant production on line..." Australia, not China, the next great shale gas hope


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Friday, July 25, 2014

Where the vision and the visionaries?

Thirty-five years ago, the U.S. government's EPA Journal stated,
"Quite simply, Love Canal is one of the most appalling environmental tragedies in American history.

"But that's not the most disturbing fact.

"What is worse is that it cannot be regarded as an isolated event. It could happen again--anywhere in this country--unless we move expeditiously to prevent it..."
Around the turn of the 20th century, developer William Love started building a canal between New York's upper and lower Niagara Rivers. He ran out of money after excavating a 50'-100' wide ditch that extended 3,000 feet. "Love Canal" instead became a municipal dump site and in the early 1940s, Hooker Chemical began using it. The company dumped millions of pounds of dangerous waste products and covered all with clay, dirt and vegetation. According to the State Health Department,
"about 80% of the total chemicals dumped were hexachlorocyclohexanes (e.g. lindane); be nzylchlorides; organic sulfur compounds (e.g., lauryl mercaptans); chlorobenzenes; sodium sulfide/sulfhydrates; various chlorinated waxes, oils, naphthalenes and anilines; benzoyl chlorides; benzotrichlorides; liquid disulfides; or chlorotoluenes..."
Within a decade, the contaminated lands were sold and schools and residences constructed. Some years later, residents were suffering unusual and serious health defects. Ultimately, people were evacuated from areas surrounding the old canal. A State health official said Love Canal was a,
"national symbol of a failure to exercise a sense of concern for future generations."
In the controversy surrounding Love Canal, governments and industry groups spent years trying to minimize the seriousness of any problems. One quasi-science group funded by petroleum, chemical and pharmaceutical industries claimed that people were falling ill, not from exposure to chemicals, but from anxiety caused by media reporting on poisons beneath their community.

Love Canal came to mind while I was reading papers related to fracking. Environmental scientists have been warning about potential dangers of fossil fuel production techniques that depend on hydraulic fracturing. However, as Propublica notes,
"a long-term systematic study of the adverse effects of gas drilling on communities has yet to be undertaken. Researchers have pointed to the scarcity of funding available for large-scale studies as a major obstacle in tackling the issue."
Premier Clark claims that natural gas is cleaner than coal and implies that British Columbia taxpayers would be doing the world a favour by subsidizing and facilitating exports of LNG. Yet, no independent science supports the Clark government's position. This week, a BC energy expert told me,
"The methane leakage problem appears significant. I believe it's one reason why non-conventional gas is not nearly as greenhouse gas friendly as conventional natural gas. Some gas emissions from non-conventional resources have a much greater impact on warming compared to say CO2. That's a big issue so it is not honest to state all natural gas is better than coal."
America's Environmental Protection Agency states,
"Methane (CH4) is more efficient at trapping radiation than CO2. Pound for pound, the comparative impact of CH4 on climate change is over 20 times greater than CO2 over a 100-year period."
The IPCC recently updated that estimate, claiming methane is 34 times stronger a heat-trapping gas than CO2 over a 100-year time scale. One person suggested that, regardless of the science, the BC LNG fantasy does not pass unscientific tests applied by common sense. He asked,
"Why are we giving low cost hydro powered electricity to liquify our low cost natural gas so Asians can transport it 8,000 kilometres and convert it back to gas and use that gas to produce electricity?"
Many years ago, BC Premier W.A.C. Bennett saw low cost power as the way to attract manufacturing industries to British Columbia. He saw it as the way to create jobs and support communities for decades to come. Today, Christy Clark and Rich Coleman also see low cost energy as the way to create jobs and support communities. The difference is that those communities are in Asia.

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Tuesday, July 22, 2014

Norm with Ian Jessop CFAX1070, July 22/14






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In the land of Not-Net-Zero

Actuaries advised teachers about a year ago that their pension contributions were rising (again) because the plan had an unfunded liability of $855 million, up from $289 million two years before. One of the reasons was underperformance of the investment portfolio. Other pension contributors in public service — excepting senior executives and politicians — also faced higher contributions for the same reasons.

However, underperformance of investments was not much on the minds of the people feeding at the trough of the BC Investment Management Corporation. The lack of restraint speaks for itself. (Note: Executive compensation reports provide information for only five individuals. A blank means the income was unreported for that year.)

bcIMC's Five Highest Paid Execs



ADDENDUM
Last September, CBC reported Wealthiest 1% earn 10 times more than average Canadian. Based on Statistics Canada reports, the article says the median individual income in Canada was $27,600. Our nation's very rich — the top 1% — earned $191,100 and more.

In fiscal year 2014, five bcIMC executives averaged 42 times the median income and six times the amount that puts them in the top 1%. The lack of restraint at the top spreads throughout the organization too. bcIMC has a staff of about 175 people and almost 2/3 earn more than $100,000 a year.

BCiMC Salaries Above 100K





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Gifts for our children

When Liberals formed British Columbia's government in 2001, they had a commitment to manage provincial finances responsibly. The result: program cuts, reduced capital spending and lower costs of administration. Fiscal conservatism was the BC Liberal mantra and provincial debt reflected the style. In Gordon Campbell's first term, debt rose by $577 million.


However, parsimony discourages existing friends and wins few new ones. As the end of the second Liberal term came into view, the commitment to fiscal conservatism altered. It didn't merely soften; it dissolved.


The outflow of public cash was suddenly unrestrained. In the last four years, debt increased by $19 billion, a rate 33 times higher than in the Liberals' first four years.


Amazingly, direct provincial debt is only part of the story. Liberals were tossing out contracts and commitments by the billions. The political party that arrived with a promise of fiscal conservatism had become recklessly extravagant and wasteful. A different kind of party was in progress; a party marked by greed, waste and personal enrichment.

Clearly, Christy Clark, Rich Coleman and friends think there are more fortunes to be distributed and more pals to be rewarded. Despite the financial disaster that is ongoing, they are planning to spend tens of billions on the LNG fantasy that replaced the failed dream of exporting electricity. The province is on the hook for $55 billion for private power but LNG could be worse.


The claim of fiscal conservatism is proven a fraud. Liberal politicians governing British Columbia have been as prudent and conservative as Ken Lay and Bernie Madoff were while robbing investors of more than $100 billion. However, at least the victims of those fraud artists got angry and put a few people in jail. We won't do that; we're Canadian; we're too nice.
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Monday, July 21, 2014

From outside the Liberal spin machine

Does it surprise you to learn that British Columbia earned a net of only $61 million in gas royalties in the last two fiscal years?

Revenue statements report $534 M in royalties from April 1, 2012 to March 31, 2014 but in footnotes to the province's audited financial statements, we learn that credits owed gas producers grew in the two fiscal years by $476 M, to a total of $1,250 M. BC Liberals choose not to record this liability because it will be deducted from future royalty payments. This is but one example of accounting flimflammery that distorts the province's true financial state. It also indicates that expectations of riches to come from massive public investments in LNG plants are sheer fantasy.

BC Natural Gas Royalties 2013 2014 2



Last March, the government MLA for one of Canada's wealthiest municipalities rose in the Legislature to speak about natural gas. Jason Sturdy said,
"our government's deep-well royalty credit and infrastructure royalty credit program will also help to increase the competitiveness of our province's natural gas sector and support the long-term prospects of the industry."
The credit programs Sturdy describes are tax expenditures, which are described by a business dictionary as,
"Revenue a government foregoes through the provisions of tax laws that allow (1) deductions, exclusions, or exemptions from the taxpayers' taxable expenditure, income, or investment, (2) deferral of tax liability, or (3) preferential tax rates."
Politicians often use tax expenditures when they don't want to draw attention to transfers of wealth from public to private hands. If the BC Government's objective is to reward natural gas producers billions of dollars while citizens — like disabled people in their seventh year of a benefits freeze — are told cupboards are bare, Liberals prefer little discussion or comment not processed by their spin machine. In this case, Robin Austin, opposition critic for natural gas development, did not provide the rest of the story. Instead, he stood after Mr. Sturdy and applauded the government's gas strategy. That, I believe, is opposition that is too loyal.

I am prepared to wager that not one in twenty carbon tax paying British Columbians — perhaps including MLA Austin — know the amount taxpayers subsidize fossil fuel development. Since handout beneficiaries are among their funders, the Canadian Taxpayers Federation does not rate as important the billions in tax expenditures encouraging fossil fuels. Today, one of Jordan Bateman's complaints is about $77.82 the Ministry of Finance spent at an online Disney store. Gas subsidies have not been on Bateman's list of subjects fit for examination.


Search Google for BC natural gas subsidies and you will find the corporate press has almost no coverage. It is discussed at sites like this and by The Dogwood Initiative and the Common Sense Canadian. Otherwise, the subject is considered not something taxpayers need to know. God knows it is material, but that's not the measure that matters to corporate media.

The following is extracted from documents published by the Ministry of Finance, including audited financial statements of British Columbia.


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Sunday, July 13, 2014

Hudson Mews v. Portland Hotel Society

The Code of Ethics published by the Society for Professional Journalists includes, among others:
  • Be vigilant and courageous about holding those with power accountable.
  • Deny favored treatment to advertisers and special interests and resist their pressure to influence news coverage.
Is the pro-media of British Columbia guided by those or similar principles? Consider the following.

When insiders at the Portland Hotel Society were caught misusing tens of thousands of dollars provided them by public agencies and donors, outrage echoed for weeks and heads rolled at the PHS. I did a Google search tonight, using the phrase,
"Portland Hotel Society" audit.
The search engine returned 165,000 results. Among the first listed were numerous items by Postmedia, Global TV and CBC. Even a release produced by www.newsroom.gov.bc.ca was near the top of the Google search page. Undoubtedly, the PHS story deserved wide coverage. That occurred and I have no objection.

Has the same diligence been applied respecting the powerful Ilich family's Townline Group of Companies and parties also associated with the Portland Hotel Society affair? Those others are Cabinet Minister Rich Coleman, BC Housing and auditors acting for the public. I did a Google search, using the phrase,
Townline "Hudson Mews" audit.
Hudson Mews
The search engine returned one result. That was Bob Mackin's article at The Tyee, Internal Audit Slammed BC Housing Deal in Victoria. He wrote about Rich Coleman's plan for BC Housing to invest $32.8 million in a decidedly upscale Victoria housing project being developed by people the Minister knew well,
...But a May 13, 2011 Internal Audit and Advisory Services report released to The Tyee via Freedom of Information tells a different story. The report said auditors rejected B.C. Housing's claim that Hudson Mews would improve directly or indirectly social housing in Victoria. It concluded that the project would expose the province to "significant and unnecessary financial risks."

"B.C. Housing was prepared to go forward with this project despite the fact there were significantly unresolved issues with respect to the project's financial viability," said the report. "Further, B.C. Housing management knew of these issues, but appeared undeterred in proceeding with the project."

...The executive summary said auditors found the Townline-retained appraiser overstated the property value by approximately $900,000, leading to a public perception that the province was receiving a substantial discount on the announced $4 million land purchase.

In fact, the province was receiving a discount of less than $100,000 in exchange for the direct award of the management contract to TLHS.
So, if the overstatement of value uncovered by auditors was close to a million dollars, the obvious conclusion is that Hudson Mews was potentially a financial controversy far larger than that involving the wayward Portland Hotel Society. If that's the case, why is it only covered by one independent investigator?

If mainstream media's political reporters were truly vigilant and courageous about holding those with power accountable, they'd have been all over the Hudson Mews story before one under-resourced freelancer could get his laptop warmed, even though he is the most diligent and feared public affairs journalist in the province.

If Postmedia didn't offer favored treatment to advertisers and special interests, it might have had one of its non-conflicted political reporters working on Hudson Mews. But then, the publisher of BC's largest daily newspapers seems determined to follow its current business plan for whatever time is has left before the Trustee in Bankruptcy arrives.






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Saturday, July 12, 2014

BC's crony capitalism in action

This item was first published March 17 but is worth reviewing because it fits with Thursday's post, Patronage and private privilege - BC Liberal P3.

It is apparent that Christy Clark and her Minister of Graft and Corruption believe no rules constrain them. Even when a senior public official like Michael Graydon is determined to have offended standards of good conduct, his former colleagues pretend surprise, avert their eyes and walk away saying, "Nothing can be done."

What they really mean is, "Nothing will be done."

* * * * * 
Flipping channels Sunday, I paused to watch as Vancouver Whitecaps FC played an MSL game at StubHub Center in the Los Angeles suburb of Carson, CA. In a facility capable of seating 27,000, the announced crowd was 6,684. No way was that a head count. Feet, maybe. Or, toes.

Regardless, I learned that no matter how many, or how few, sports fans paid admission, California taxpayers were unaffected because StubHub Center was financed by its operator, Anschutz Entertainment Group. I looked at the financing of other sports arenas - or multi-use facilites, as the spinmeisters prefer - and learned that BC Place sets a standard than none of the others come close to meeting. The graph illustrates:


Dollars in the following detail have not been adjusted for project timing or exchange and that would change the comparisons slightly.

This would be amusing if it were not such an impactful situation. For more than a decade, BC Liberals have claimed to be skilled managers of the people's finances, saving us from economic disasters that would result if lefties were in charge. The taxpayers of BC paid almost $15,000 for each and every seat of BC Place. Yet, the Socialist squanderers in Sweden managed to open the equivalent sized Friends Arena in Stockholm for a public cost of $1,325 per seat.










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