Sunday, May 11, 2014

Looking at BC's revenues from natural resources

A replay, first posted October 2013. It is important to consider that the $868 million shown as FY 2013 income from crown land tenures is mostly recognition of exploration rights sold in prior years. Income of this type is deferred at time of sale and taken into current revenue over time. So, BC's financial statements for fiscal years 2012 and 2013 showed revenues of $1.9 billion from "crown land tenures" but the sales in those two years generated only $400 million. This represents actual results from sales of exploration rights.


Article from October 2013:

In the last seven years, provincial revenues from ferry fares and medical services premiums increased almost 40% but natural gas royalties declined by 91%. Actually, that doesn't tell the whole story because government provides credits to gas producers that will offset future royalties. BC Liberals choose not to record the accumulated liability for these credits. That was a factor in Auditor General Doyle issuing a qualified opinion on the last financial statements he signed.

The credits that producers can use to reduce future royalties amounted to $934 million as of March 2013, an increase in the liability of $160 million during the fiscal year. Had generally accepted accounting principles been used, net royalty revenue from natural gas would be stated as $9 million in 2013, not $169 million as reported. A far cry from the almost $2 billion realized from natural gas royalties in 2007.

From Note 28 to the province's audited financial statement for 2013:
"The province offers credits for certain costs incurred by producers including the deep well, road and summer drilling programs. Deep well credits of $913 million (2012: $752 million), road credits of $12 million (2012: $16 million) and summer drilling credits of $9 million (2012: $6 million) have been incurred by producers and will reduce future natural gas royalties payable when wells go into production."
I asked a Chartered Accountant acquaintance to estimate the amount earned by British Columbia from natural gas royalties in the last three fiscal years. He was unsure but guessed the amount would "measure in the billions." When I told him the number was only $63 million, net of the increase of drilling credits owed producers, his reaction was disbelief. I expect that most BC citizens would be similarly deceived.

These numbers are drawn from Ministry of Finance documents with the current dollars calculated by using the Bank of Canada inflation calculator:


Does anyone believe that revenues from the natural gas industry will pay off BC's public debt of $70 billion, as promised by Premier Photo Op?



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21 comments:

  1. Don't see how NG will pay off BC's debt.

    We will all have to smoke, drink and gamble a lot more!

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    1. scotty on denmanMay 11, 2014 at 2:31 PM

      Speaking of smoking, drinking and gambling: we expect an accelerating increase of healthcare costs as the BabyBoomer bulge moves into old age. Let's pray that part of the pie isn't as high in the sky as Christy's LNG expectations.

      Delete
  2. For the second table, with a decade between numbers, important to put them into constant dollars. Pick a deflator of your choice. Very interesting work.

    ReplyDelete
    Replies
    1. Good point so I've redone the comparisons with numbers in 2013 dollars. One must keep in mind that some resources, coal for example, have risen in price at rates well beyond inflation.

      Delete
  3. The new BC Liberal motto, giving away the farm so you can rest easy. Or at least think you can rest easy.

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  4. The liebs claim they lowered personal taxes. You know, we have the lowest in Canada? Ah hah. Sure.
    And Gordo's claim our rail co. was losing? Ah hah. Sure. It was, and would have been doing just fine. But their property would have done much better, (Crown land tenures) that's what it's all about.
    So looking at what's listed, everything has increased pretty substantially, (according to my bank account, taxes, gas, hydro, insurance etc.) but according to liebs we are much better off under them. Ah hah. Sure.
    Unfortunately, people believe every word they say. I just don't get it.

    ReplyDelete
    Replies
    1. scotty on denmanMay 11, 2014 at 2:34 PM

      I disagree that people believe every---or even any---word the BC Liberals say but agree with the rest, especially "I just don't get it".

      Delete
  5. Canada has become rotten to the core with corruption. The BC Liberals work for Harper. Citizens of BC have had two monsters to deal with, for a very long time now. Harper and his so called Cons, the Campbell/Clark BC Liberals and both cheat, to win their elections. Harper's list of his degenerates is, as long as his arm.

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    1. scotty on denmanMay 11, 2014 at 3:01 PM

      I'm thinking that there are as many people in other provinces who know as much about BC as I know about, say, PEI or Nunavut---which is not very much, so I'm not inclined to believe all of Canada is corrupt or, even more, as corrupt as BC is. But I suppose it depends on how corruption is defined; kickbacks and featherbedding like we see in Quebec is one thing (at least there's some sort of inquiry happening and, it should be underlined, because there's no fixed-election dates in Quebec, the opportunity for the electorate to respond to the issue is greater than in provinces where this rightist trickery has been deployed against Westminster parliamentary systems) but, as far as I'm aware, BC takes the cake for blatancy in nose-thumbing at charges of impropriety, conflicts of interest and most other forms of corruption, with impunity, even when the charges are made by public auditors and regulatory bodies. The corruption of the BCR corruption trial iced the cake; the $6 million hush money payoff was the cherry on top; together they underlaid the outrage which eventually took out Gordon Campbell, his HST lie being merely the straw that broke the camel's back. The sickening result of the last election is the licence the kleptocrats presume to have been awarded by the voters.

      Delete
  6. EnCana getting public money from carbon offsets for money-making projects:

    http://globalnews.ca/news/434514/auditor-general-delivers-damning-report-on-b-c-s-carbon-trading-system/

    ReplyDelete
  7. I have to question the revenue the government claims to receive from MSP premiums. Most, if not all, teachers, medical staffs and other government employees have their MSP premiums paid from the budgets allotted to them by the government. In essence they are taking the money from one pocket and putting it in another. The only real revenue they get is from those of us that work in the private sector.

    ReplyDelete
    Replies
    1. Presumably, if the employers were not paying MSP premiums, they would be paying the dollars directly to employees as wages. They don't pay medical and other benefits through beneficence, they pay since those amounts are negotiated as part of pay packages agreed with staff or representatives. When mediators and arbitrators examine rates of pay, they look at cash wages and fringe benefits as one.

      Delete
  8. Of Canada and Brazil and elseware

    http://thegallopingbeaver.blogspot.ca/2013/10/stevie-and-brazil.html

    ReplyDelete
  9. Crankypants are you saying that gov employees don't pay MSP premiums?! I just looked at my pay stub and it says I have over $1000 per year in the deduction side of things for MSP premiums. Granted, my salary is paid by the gov. but they deduct those premiums from my pay no differently than someone in the private sector.

    ReplyDelete
  10. Are you a federal or provincial employee? I'm a provincial employee (BC) and my employer (BC government) pays my MSP premiums as a taxable benefit.

    ReplyDelete
    Replies
    1. If any employer, public or private, pays all or a portion of an employee's medical services plan premiums, the payment must be reported as taxable income. They employee pays tax on the employer's contribution at the marginal (highest) rate.

      Delete
  11. And another very dismal monthly sale of drilling rights. Land sales are doing nothing to improve the liberals lagging fortunes. Royalty credit subsidies were their way to increase land sales. Ranks right up there with giving away a railroad to insiders.

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  12. BC Auditor General Russ Jones has just released his Fall report: Observations on financial Reporting Page 26 of 37
    3. Failure to provide for earned natural gas credits
    In the past, the Auditor General had an audit qualification in his audit report related to government’s failure to set up a provision, or liability, for the deep-well credits given to gas producers. Deep-well credits are used to reduce the amount of royalties that gas producers must pay to government in the future when they extract gas from a well drilled to a specified depth. This incentive program was initiated to encourage further development of gas resources. In this year’s Summary Financial Statements, government included disclosure in Note 28 so readers can see and understand the amount of deep-well credits given to gas producers. While disclosure is not a substitute for complete and accurate financial reporting, enough information was provided for users to assess the impact of the deep-well credit program on future natural gas royalty revenues. As such, a qualification was no longer required.


    BC Government Summary Financial Statement Website of the Comptroller General

    Summary Financial Statements
    — these audited statements pull together and summarize all the financial activities within the province’s reporting entity, which includes the government, Crown corporations, school districts, universities, colleges, and health authorities.

    NOTE 28 Page 12 of 71

    Natural Resources (Note 28) in Millions Estimates 2,986 Actual (2013) 2,473 Actual (2013) 2,812

    ReplyDelete
    Replies
    1. They overstated their future return by more than a Half Billion Dollars

      Delete
  13. G. Barry StewartMay 13, 2014 at 7:17 AM

    Norm says, "I asked a Chartered Accountant acquaintance to estimate the amount earned by British Columbia from natural gas royalties in the last three fiscal years. He was unsure but guessed the amount would "measure in the billions." When I told him the number was only $63 million, net of the increase of drilling credits owed producers, his reaction was disbelief. I expect that most BC citizens would be similarly deceived."

    I wonder of the accountant, "And who did you vote for in the last election?"

    ReplyDelete
  14. I take it that without a bookkeeper's trick of counting revenue received in previous years, the BC deficit in 2012 and 2013 would have been one and a half billion dollars more.

    The guy who originated the famous quote should have said "Both economics and accounting are dismal sciences."

    ReplyDelete

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