Sunday, December 2, 2012

A government of universal deceit

Theoretically, politicians are stewards of the nation's resources and regulators of industries that exploit public assets. Yet those chamberlains receive contributions worth millions of dollars every year from the people they are supposed to regulate. Clearly, this is a conflict that occurs only because the beneficiaries are also the rule makers.

Gas producers like EnCana Corp and Canadian Natural Resources (including large shareholder Al Markin) have given BC Liberals close to a million dollars in recent years, according to Elections BC. I searched on the FRPC site for corporate contributors with the word energy in their names. The report showed an amount going to BC Liberals that was 74 times the amount given the opposition NDP. Those same companies gave nothing to the BC Conservative Party and the Green Party of BC.

Are these corporate citizens simply doing a civic duty, supporting democratic institutions? Of course not. They are purchasing influence over people who regulate their economic prospects. Government ministers, who should be acting as trustees of the public interest, choose to be agents and facilitators for businesses with deep pockets and generous inclinations.

We've been hearing for months from BC Liberals that revenue from natural gas production is sharply reduced in the current fiscal year. No doubt the public share is reduced but we should be asking why.

I suggest there was a political decision to relieve gas companies from payments they would otherwise have been obliged to make.

In the current fiscal year, sharply lower government revenues do not result from lower gas prices earned by the industry. Here is a chart of natural gas prices in the first half of the current fiscal year.


This is not the first time that a business friendly government in BC has consciously reduced the public share of revenues earned from public resources. The following is a situation that I wrote about in a personal chronicle, Recalling BC Pioneers:
"Ian Mahood was angered by what he believed were under the table subsidies to large forest companies, achieved by 'short scaling' agreed to at the highest political levels. Scaling measured the quantity of log production, which was used to assess stumpage owing to government as the public share of the forest resource.

"American producers were already complaining that BC stumpage charges were too low and therefore an improper subsidy. They wanted punitive tariffs applied. However, the BC companies were complaining that stumpage was too high and depressing their profitability. The BC government dared not reduce stumpage rates because that would add fuel to the American arguments. Instead, an under the table agreement led to keeping the stumpage rates as they were but artificially depressing the 'scale'. That reduced the amount payable to government by BC producers but avoided giving ammunition to Americans because it was hidden.

"However, some contracts between major forest companies and independents called for the actual working loggers to be paid according to the government scale. By artificially depressing the measurement of timber produced, not just the stumpage was reduced; so were the payments to contractors for log production. In effect the small logging operators subsidized profits of the big guys, the forest license holders.

"Ian Mahood's company believed they were out large sums of money but Ian said terrific pressure was put on the loggers to keep quiet. Of course, the big companies and the government had significant leverage they could apply."
It seems to me the same strategy is at play today in the energy sectors. Government intends to reward corporate participants and it is doing so through the back doors. With an election only 23 weeks away, Christy Clark and Mike de Jong dare not admit their real intent.
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10 comments:

  1. An obvious link. Instead of paying royalties, they pay politicians.

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  2. Anon-Above--

    And even better, the payment is, if I've got Norm's numbers right, pennies on the dollar.

    At most.

    .

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  3. I Googled "BC Gas Revenue" and came up with a recent article by Marc Lee at Rabble.ca. http://rabble.ca/blogs/bloggers/policynote/2012/11/bcs-natural-gas-and-folly-using-resource-royalties-fund-public-ser


    "Back at the 2005/06 peak for revenues, the effective royalty was just over $60 per thousand cubic metres of natural gas. In fact, between 2000/01 and 2008/09 the average effective royalty was over $40 per thousand cubic metres. It then drops dramatically from 2009/10 to the projected 2012/13 royalty of less than $4 per thousand cubic metres, a collapse of 93 per cent. Royalties are calculated based on a mix of volume and price data, and fracking has driven up production across North America since 2005, with prices falling from a high of about $7 per gigajoule (GJ) in 2005 to under $2 earlier this year."

    So: prices fell by about 70% from the high of 2005... but the royalties fell by 93%.

    It seems to me that if 1000 cubic metres are pulled out of our ground, there should be a minimum fee paid to the province. Even if the prices go down the drain (not likely) the minimum royalty should not dip below a certain amount. If you can't afford the minimum royalties, leave it in the ground until prices or technology makes it more viable.

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    Replies
    1. You capture my point and make a logical argument. There should be no rush to exhaust non-renewable resources, particularly when the owners gain little or no return. Maybe Canada is better off to NOT ship natural gas to Asia, particularly when the shipment must be heavily subsidized by taxpayers. Our grandchildren will wonder why.

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  4. Have to agree with you Norm, there should be no rush to exhaust these resources. Too much unknown.
    http://stopmakingsense.org/2012/12/01/livestock-falling-ill-in-fracking-regions-nbc/

    And, your headline on this article is SO true and has been since their beginning.

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  5. The huge amount of power that LNG plants would require would make Site C necessary, at a cost of est. $8 billion to BC Hydro. This would be reflected in higher hydro rates for BC residents and businesses. The $8 billion would be added to the now $52 billion cost for IPP power, and the $1 billion cost of the 'smart grid'.

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  6. These subsidies were a half baked idea right from the start. Supposedly put in place to generate income taxes via jobs or at least that is how they wer sold. Most of the jobs with the exception of the 7000 or so Marc Lee also reports. Even more disgusting is that we are shipping more gas than ever and revenues are trending down. As are land sales. The proof is right in front of the liberals that these plans have been total failures from a job perspective and a royalty perspective.

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    Replies
    1. I've heard the CKNW Friday trio talk about huge drops in natural gas revenues flowing to government. They never explained why the revenue was dropping. Now, I understand.

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  7. Cronyism at its finest. The very sad thing is that it's not especially difficult to set up a royalty system to ensure BC receives a fair share of revenues and profits from resources - what's needed is a reasonable royalty based on produced volume, not price, plus transparent auctions of exploration/drilling rights, plus maintenance fees for sitting on reserves - a combination of this type of system ensures the resource owner gets "market" value for the resource. Let the producers take the price risk -they're the capitalists, right? - and let the govt build a somewhat stable revenue stream.

    BC is not alone in undercharging for resources. Alberta's clearly significantly reduced its royalties as well in many instances.

    In any case, exports of LNG seem pie in the sky at this point. Asia natgas prices, like in Europe are formula linked to oil prices in many cases, but Asian buyers want to break this link and let an independent natgas pricing develop more fully, presumably because they fell natgas prices would then fall. Parts of Asia pay some of the highest prices: spot $15/thousand cf. It's not easy finding a long term Asia buyer who might sign a long term - 25-30yr - contract. Such a buyer is gonna want a significantly lower price, maybe 30% discount for participating in the risk. On the production side, shale gas costs are, by many reports, at least $8/thous cf and increasing rapidly in the US where plays are in a more advanced stage of exploitation; yet even with the US experience, shale gas wells have no long term track record and data so far shows they ramp up and deplete within a few yrs to very low production, versus good conventional gas plays that ramp slowly, peak, perhaps plateau for a few yrs then decline gradually. During the recent North America natgas price collapse shale gas drillers kept going, backed by cheap money, even though they were losing money on wells; no matter, the overall financing ponzi scheme worked, until it didnt (eg. Chesapeake desperately unloading properties to pay debts and trying to shift more to oil drilling).

    Under the above conditions, there is a significant risk that LNG exports/producers will seek big power subsidies (as so many expect now), but that they'll be back for more over time as rosy production projections and costs are not born out.

    A final thought, we hear little discussion about what impact exports will have on domestic natgas prices. I had at one point on a whim queried the Premier's office and aftr a few days research they came back with an anwer: domestic prices would be impacted up by 10%. What's the real number, if this is the one they admit to?

    sorry for the long reply: blog commenting violation.

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  8. And these corporations have to do nothing with the mess they may leave behind for years and years to come if they change they're names to hide who they really are and go bankrupt, imo.

    http://ca.news.yahoo.com/high-court-says-province-cant-force-insolvent-company-145545878.html

    ReplyDelete

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