Friday, October 31, 2014

Don't follow the law, change the law

British Columbia's Auditor General reported to the BC Legislature and there is interesting commentary throughout. Carol Bellringer qualified her opinion as to the fairness of the province's financial statements and professional accountants regard that as not-good.
  • "This year, our audit opinion on the Summary Financial Statements contains two
    qualifications, or areas for concern. One involves the way that government records
    certain revenues in future years, rather than when received and used. The other
    qualification relates to prior years for how a Crown Corporation was classified."
These issues are technical but generally accepted accounting principles (GAAP) provide a consistent way of presenting financial positions of organizations at particular times, as well as the results of operations for the periods reported. Without this framework, stakeholders are less able to determine how money is managed. The Wall Street Journal referred to GAAP as an idea that is "so simple yet so radical."

Governments, because they make rules, don't feel compelled always to follow rules. This was noted by Alana James, a BC health ministry lawyer who wrote about the attitude she perceived among colleagues,
"'s unfortunate that we don't follow the law but that we plan on changing the
legislation at some point so that we will."
The Auditor General draws attention to information already known by Northern Insight readers. She reports that, in fiscal year 2014, oil and gas companies deducted $568 million from royalties that would otherwise have been payable and that a further $1.25 billion in credits remain available for deductions in the future. That unrecorded liability increased by $316 million from 2013 so, in one year, oil and gas extractors gained the current and future benefit of $903 million of incentives, a subsidy that touches $1.3 billion if ministry expenditures are included.

Ms. Bellringer takes a direct shot at public-private partnerships that Liberals claimed would save taxpayer money,
  • "it is interesting to note that while government’s weighted average cost of
    borrowing is approximately 4%, on the $2.3 billion that government borrowed through
    public private partnerships this is 7.5%.
Goodbye $80,500,000 a year.

BC Ferries, while not paying interest as high as P3 operations, paid an average of 5.5% on its $1.346 billion in term debt. The premium over government borrowing rates burdened the ferry company with an extra $20.2 million interest in FY 2014. Multiply that over the 11-year life of the "private" ferry corporation and you're talking significant money drawn from the pockets of coastal commuters.

The Auditor-General draws attention to gilding that made 2014 financials deceptively attractive,
  • "When assessing financial performance, it is important to look for, and understand,
    the impact of one-off events, such as the sale of government owned land or buildings.
    Last year, government earned $601 million from the sale of assets: $311 million from
    government’s program to release surplus assets, such as two former gravel pits in
    Surrey and a surplus parcel of land in Kamloops; and, close to $290 million from the
    Little Mountain property in Vancouver. ...Although only a small percentage of total
    revenues, the gain is a significant part of the bottom line for the year, which was
    reported as a $353 million surplus in the 2013/14 Summary Financial Statements."
There are numerous other items worthy of comment in the auditor's report, including BC Hydro's use of expense deferrals. These inflated the utility's equity and allowed government to scoop extra funds and enjoy more attractive headlines when deficits or surpluses are reported. I will be writing about this separately but will note a comparison of deferrals with an eastern utility that owns assets three times the value of the power company in this province:
  • BC Hydro   $4.7 billion       Hydro-Québec   $8 million
By the way, I will be on CFAX1070 Monday at 2pm to talk with Ian Jessop about the Auditor-General's report.

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Wednesday, October 29, 2014

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Tuesday, October 28, 2014

One value Premier failed to learn: truthfulness

This item from April 2013 is updated with current numbers.

In a 30-minute TV commercial two years after assuming the office of Premier, Christy Clark said that leadership involves,
"holding true to the values you were raised with..."
If I were one of the people that parented her, I would feel a sense of failure, values wise, since she has little commitment to truthfulness. For example, she claimed Sunday her goal was to leave a debt free province.
"You don't leave your kids with debt. It's just the wrong thing to do."
That statement is fatuous. Worse than fatuous, it is a lie. So too was the 2013 election promise that LNG would eliminate debt and leave the province with a 12-figure Prosperity Fund

The BC Liberal government has added more provincial debt than any in history.  No other administration compares when it comes to plunging citizens, both adults and children, more deeply into debt. Additionally, the Liberals rolled up more than $100 billion in debts that don't actually get counted as debt; they are "Contractual Commitments."

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Monday, October 27, 2014

Hedonists of power

Chris Hedges wrote many words for the New York Times; some of them wrong. He participated in false reporting that helped orchestrate invasion of Iraq by the coalition of the dragged kicking and screaming. He recognized error though and became an articulate critic of his nation's aggression. The NYT, which preferred the Bush administration's version of truth, condemned Hedges and encouraged his departure.

He is sometimes controversial but always thought provoking. His latest column at Truthdig is a good one that should be read completely: The Myth of the Free Press. An excerpt:
"The mass media blindly support the ideology of corporate capitalism. They laud and promote the myth of American democracy—even as we are stripped of civil liberties and money replaces the vote. They pay deference to the leaders on Wall Street and in Washington, no matter how perfidious their crimes. They slavishly venerate the military and law enforcement in the name of patriotism. They select the specialists and experts, almost always drawn from the centers of power, to interpret reality and explain policy.

"They usually rely on press releases, written by corporations, for their news. And they fill most of their news holes with celebrity gossip, lifestyle stories, sports and trivia. The role of the mass media is to entertain or to parrot official propaganda to the masses. The corporations, which own the press, hire journalists willing to be courtiers to the elites, and they promote them as celebrities. These journalistic courtiers, who can earn millions of dollars, are invited into the inner circles of power. They are, as John Ralston Saul writes, hedonists of power."
To me, Saul's words were prominent. He is a prolific Canadian writer and thinker but also known for six years he spent at Rideau Hall with his wife, Governor-General Adrienne Clarkson. The quote is from Voltaire's Bastards: The Dictatorship of Reason in the Westand when Saul refers to hedonists of power, he includes more than corporate media fellow travelers. This is an abstract:
Trending toward the end of egalitarianism. Source
"…Modern men of power come in many apparently different forms. But certain characteristics link them. First, a great difficulty in coming to terms with the democratic process. The talents of the technocrat do not suit public debate or an open relationship with the people. …They set enormous value upon secrecy. Intentionally or otherwise, their methods induce fear among those who must deal regularly with them. Almost without exception they are bullies.

"…The technocrats suffer from character defects which have to do with their inability to maintain any links between reason, common sense and morality. They believe themselves to be the inheritors of the Age of Reason and therefore do not understand why their talents fail to produce the intended results.

"Their abstract view of the machinery of human society prevents them from understanding the natural flow of events and from remembering when they themselves have erred and why. That is to say they don't seem to understand the historical process. Instead they seem actually to believe that their definitions of the world will become both real and permanent simply because they are the result of applied logic. When these formulae refuse to stick, the technocratic mind, rather than deal with failure, simply wipes the slate clean and writes a new definition. They are, in that sense, slaves of dogma.

"…Their talents have become the modern definition of intelligence. It is an extremely narrow definition and it eliminates a large part of both the human experience and the human character. Suffice it to say that under the current definition of intelligence, Socrates, Byron, Jefferson, Washington, Churchill, Dickens, Joseph Conrad, John A. Macdonald and Georges Clemenceau would have been unintelligent or eccentric or romantic or unreliable.

"The technocrats are hedonists of power. Their obsession with structures and their inability or unwillingness to link these to the public good make this power an abstract force — a force that works, more often than not, at cross-purposes to the real needs of a painfully real world.
Merging the comments of Hedges and Saul provides a timely warning to Canadians. Bullies in the halls of power provide or withhold access and information, the stock in trade of journalists. With a natural preference for reward over punishment, most reporters become courtiers and push colleagues to adopt the same role. Those who choose the more difficult course and dare to shame the comfortable sycophants may become journalistic lepers. Chris Hedges provides American examples but we may have Canadian ones in present days. One is Andrew Mitrovia, another might be Michael Harris, author of Party of One. Here in the west coast minor leagues, it is bloggers who draw the ire of media lickspittles.

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Thursday, October 23, 2014

Different ways, different results

Note 11 from a study by John Calvert and Marjorie Griffin Cohen of Simon Fraser University, Climate Change and the Canadian Energy Sector:
"In this regard it is interesting to compare the approach of Alberta with Norway. While the timing of their respective production rates varies, both jurisdictions have produced about the same volume of oil over the past four decades.

"According to the Sovereign Wealth Fund Institute, as of December, 2010 Norway has over US$512 billion in its ‘rainy day’ pension fund for future generations — a fund built up principally from its oil and gas revenues." (By June 2014, the Norway's public fund was valued at US$893 billion,) which is $1 trillion Canadian.

"In comparison, Alberta’s Heritage Savings Trust Fund, which was started in 1976, had accumulated assets of $14.8 billion as of September 30, 2010." (By June 2014, Alberta's public fund was valued at CAN$17.5 billion.)
In British Columbia, nothing has been set aside from the extraction of natural resources worth hundreds of billions of dollars. All the province has is Christy Clark's now empty promise of a $100 billion "Prosperity Fund" from natural gas extraction.

What Norway did with its oil and we didn’t, Esther Hsieh, Globe and Mail, May 2013
"When oil was discovered in the Norwegian continental shelf in 1969, Norway was very aware of the finite nature of petroleum, and didn’t waste any time legislating policies to manage the new-found resource in a way that would give Norwegians long-term wealth, benefit their entire society and make them competitive beyond just a commodities exporter.

"'Norway got the basics right quite early on,' says John Calvert, a political science professor at Simon Fraser University. 'They understood what this was about and they put in place public policy that they have benefited so much from.'

"This is in contrast to Canada’s free-market approach, he contends, where our government is discouraged from long-term public planning, in favour of allowing the market to determine the pace and scope of development.

"'I would argue quite strongly that the Norwegians have done a much better job of managing their [petroleum] resource,' Prof. Calvert says.

"...While there’s no question that Norway has done well from its oil and gas, unlike many resource-based nations, Norway has invested its petro dollars in such a way as to create and sustain other industries where it is also globally competitive..."

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"...A lot more electricity being needed."

British Columbians are fortunate to be guided by wise and experienced leaders, people able to analyze events and foresee the future in ways that more practised experts cannot. One of my favourites is Bill Bennett, a man particularly qualified to make decisions on how the public ought to spend tens of billions of dollars.

Bennett gained expertise and honed business acumen as an entrepreneur involved in fishing camps and a goose-hunting lodge on Hudson Bay. Despite potential conflicts, he maintained a financial connection to wilderness tourism even after beginning a career in politics. Reporter Larry Pynn provided detail in Bill Bennett is still trying to put his past behind him, a 2013 article in the Vancouver Sun.

With keen perception of a man certain of the road he follows, Bennett recognizes uses that might overwhelm present generating capacity if a ten or fifteen billion dollar commitment to Site C is not made.
"There are new and increasing uses for electricity: electric cars, the things that we tape our favourite television shows with, our phones, our iPads, our laptops, etc.; a lot more electricity being needed."

Admittedly, I missed the impact of those items. I assumed that fewer than 1,000 electrical vehicles (0.029% of registrations) placed little burden on BC Hydro because they are typically recharged at night. As well, I was lulled into a sense of comfort by Forbes Magazine reporting that I can power all my electronic devices and use less electricity simply by changing one 60 watt incandescent bulb to a compact fluorescent. I had also assumed that taping television programs was done only by the few people still playing 8-tracks as they roll on down the highway. Additionally, my information had suggested that modern flat screen TVs use about 75% less power than the old cathode ray tube sets that are disappearing.

Seriously, I wonder if we could convince Bill Bennett's colleagues that he has been speaking nonsense, would they send plans for Site C back to the archives?

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Tuesday, October 21, 2014

Restraint, BC Government style

Nearly half a million children are missing school days this year because government believes that spending restraint is imperative. Restraint in collecting taxes, at least from ordinary citizens, is not as vital.

The Transportation Investment Corporation (TIC) annual report provides a view of what lies ahead for commuters crossing the Fraser River on the new Port Mann bridge. When Gordon Campbell announced the structure and associated roadworks, they were to cost $1.5 billion and the bridge toll was to be $2.50. The final tab, at $3.319 billion, is 121% higher but, at $3.00, the small vehicle toll is up only 20%.

Before long, the present toll will look like a bargain. TIC's revenue forecast in fiscal year 2014 was 29% higher than actual receipts but the agency counts on raising those amounts by 85% in three years. Since traffic levels are below expectations, most of TIC's additional income will result from higher prices. That suggests we're headed toward a single small vehicle crossing fee of $6.00 and a monthly pass cost of $300 or more.

Non-commercial tolls might rise even more if government moderates increases for businesses or if higher prices result in still lower traffic levels.

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Friday, October 17, 2014

Ready, fire, aim

Andrew MacLeod provided the title above in a Thursday Tweet linking to his column in The Tyee. Slots on Ferries a Complicated Bet, Warned Finance Ministry:
"After Transportation Minister Todd Stone announced BC Ferries' proposal to put slot machines on its vessels last year, the finance ministry began compiling a list of concerns that ranged from the need to rewrite provincial gambling laws to the likely violation of the federal criminal code.

"Records released to The Tyee in response to a freedom of information request show the finance ministry had a dozen "considerations" about the Nov. 2013 proposal, and that Stone had already taken the idea to cabinet without consulting the branch of the finance ministry that regulates gambling in the province..."
This is evidence that thoughtful government planning in British Columbia is rare. So too, it seems, is competence. BC Liberals have wrestled or pretended to wrestle with the issue of money laundering in casinos for some years. When it comes to finding effective solutions, either they lack the needed savvy or the commitment.

Casinos saw $27M in suspicious transactions, CBC News, October 16, 2014
"A CBC News investigation has discovered a rush of suspicious money totalling almost $27 million flowed through two B.C. casinos this spring. Most of the mystery money that came in from mid-March to mid-June arrived in bundles of $20 bills — a common currency used to buy street drugs..."
A new issue? No, in August 2011, this blog first published Gangsters love dealing cash. It is repeated here with minor editing.

News item: Catherine Pope, reporting for Global News, August 25, 2011:
"It's not clear how big of a problem money laundering is in BC casinos but the government admits it's not uncommon for people to walk into casinos with suitcases filled with tens of thousands of dollars in small bills."
You can bet that Global News and their corporate media colleagues are not about to do any detailed investigation to find the extent of the problem. However, they will dutifully trumpet memos and reports issued from Victoria.

Money laundering is the subject of an August 24 government press release. BC Liberal minions pulled out the stops to assure us that, having been told by critics about the possibility of money laundering at gaming facilities, they are thinking of "...appointing a task force to report on the types and magnitude of any criminal activity..."

This is an example of governing by press release. The actual report "Anti-Money Laundering Measures at BC Gaming Facilities" was produced by the Solicitor General's office in February, six months ago. It was not a considered and expert view of illegal cash transactions at casinos, it was an internal political response to heavy criticism in the media following reports the month before of suspicious gamblers entering facilities with massive sums of cash in small denominations.

Douglas Scott, Assistant Deputy Minister for Gaming, Solicitor General, Province of BC had this revelation while posing for the cameras at a Victoria news conference:
"The casinos of today are bringing in significantly more revenue than in the past so as a result that now makes them a target for money launderers where they would not have been previously."
That is a foolish statement because any person with an ear to the ground knows that money laundering has long been a prevalent activity at casinos. It didn't suddenly begin in the last few years. Additionally, gambling revenues are down all over. Recession weary Las Vegas is now the foreclosure capital of the USA and Atlantic City gaming revenue has declined on the monthly year-over-year basis for 35 straight months. BC has not been immune and, according to Sun writer Pete McMartin,
"B.C. Lottery Corporation has paid out more than $400 million in gambling revenues to B.C. casino operators so that they can recoup their capital costs.
Perhaps Scott and his colleagues in Victoria had not been much concerned about money laundering because the BCLC had looked carefully at itself in 2010 and determined,
"BCLC, in terms of policies and procedures, has a robust anti-money laundering regime in place. Further, it was determined that GPEB has the required level of anti-money laundering expertise and is capable of discharging its responsibility to provide oversight as it relates to anti-money laundering and associated criminal activities at gaming facilities."
Katie Derosa at the Times Colonist wrote this,
"Currently, customers are given a cheque for their winnings and cash for the remaining amount of their original buy-in. Casinos will now encourage people to take a cheque that states the amount is for the original buy-in, which creates a paper trail for auditors and prevents people from claiming funds to be gaming wins.

"However, Scott admitted there is nothing to compel gamblers to accept a cheque or use electronic transfer.

"NDP gaming critic Shane Simpson said the review had failed to recommend limits on how much cash a person can take into a casino. For example, a gambler can still take in $400,000 in $20 bills and cash it in for chips, a practice which sounded the alarm for Mounties and sparked the review."
There you have it fellow citizens. We will fight money laundering by encouraging, but not compelling, crooks to accept a cheque from casinos when they are laundering proceeds of drug crime.

And, if that doesn't work, we'll consider STRONGLY encouraging crooks to do the right thing.

Also read Money laundering and casinos, who knew? from April 2014.

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Tuesday, October 14, 2014

Official opposition on resource development

John Horgan in the Legislature, October 8, 2014:
"...Three years ago the Premier told B.C. families that she would make B.C. a leader in private sector job creation. Three years later we're No. 9. When it comes to LNG, three years ago she said we'd create 100,000 jobs, we'd eliminate the debt and we'd eliminate the sales tax. And where are we today? A throne speech two days ago that made no mention of the debt, made no mention of a prosperity fund, made no mention of eliminating the sales tax.

"So when it comes to LNG — to the Premier — how can families take her seriously when she's put British Columbians right where Petronas wants us? What can she say to British Columbians when she can't deliver a tax bill to this House because Petronas hasn't written it yet?

"...The Premier also talked about opening up new mines. When I became Leader of the Official Opposition, I travelled to Tumbler Ridge. I don't know if the Premier has been up there lately, but 750 workers — operating engineers and steelworkers — are no longer working in the mining sector in Tumbler Ridge. In fact, by the end of this year the only people working in the mining sector in Tumbler Ridge will be temporary foreign workers that the Premier supported in coming here.

"It's not just the mining sector. The Premier took the photo opportunity to be at a mill in Nanaimo to talk about jobs in the forest sector just before the last election. That very same mill in Nanaimo where the Premier stood and talked about growing the forest economy is shutting down. It's closing.

"...I asked her a question about mining and forestry, as mining executives and forestry executives and mine workers and forest workers have been doing for the past 18 months. What did they get back? Liquefied natural gas. There's something else in British Columbia that's driving the economy. It's traditional industries that you've ignored at the expense of just one — just one pipedream."
Mike Farnworth in the Legislature, October 9, 2014:
"We have four key points to support the development of LNG in this province, and that's number one: ensuring jobs and training opportunities for British Columbians.

"We want to ensure that development that takes place benefits the people in this province, that they get the skills and training they need to take advantage of those opportunities. That's crucial, and that was missing in the throne speech.

"In the throne speech it talked about the burgeoning middle class in China. You know what, Hon. Speaker? I couldn't care less about the burgeoning middle class in China. What I care about is the declining middle class here in British Columbia. We need to stem that decline, and we do that by creating opportunities for British Columbians with the wealth that exists in this province. That's what we need to be doing.

"The second point that I want to raise in terms of the development of LNG and resources in general in this province is that we want to receive a fair return for those resources that belong to us, the people of British Columbia. A fair return for our resources...

"We need to be realistic with British Columbians that LNG is not the be-all and end-all, but it can be part of a comprehensive strategy, not just in terms of a local industry but in terms of an industry that does export to parts of the world where our product is in demand.

"...The other two points that, we believe, need to be important in terms of our development of LNG ...are that First Nations are clearly respected and are partners and that we recognize their right to share in any benefits that flow from the resource.

"...We want to see First Nations participate. But there are too many examples of First Nations who feel — not just feel, but who have found — that their rights, through court cases, have been ignored. Too many cases where they continue to not be consulted. Too many cases where they're not partners. That must change...

"The final point, I think. This part is also absolutely critical. That is: ...all resource development protects our land, air and water...

"One only has to look to the record of the government over the last several years in terms of deregulation and, where there is regulation, the lack of resources to enforce those regulations.

"We've had the issues around Mount Polley, Lemon Creek and other rivers and streams in this province that have been impacted — in the case of Mount Polley, by a tailings dam collapse; in the case of other areas, significant spills that have caused significant environmental damage — issues relating to the state of our forests and our ability to even understand the nature of the inventory that we have in this province — the inspection of mines and how often they're inspected.

"We have not seen the necessary investments in those areas to do what either the government talks about..."
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Leadership with courage to be honest

Andrew Weaver, MLA for Oak Bay Gordon Head, spoke to the Legislature on October 9, 2014. This is an excerpt, with emphasis added:

"The undeniable truth is that British Columbians have been sold a bill of goods that is not based in reality. In an election where the government was set to fall, a Hail Mary pass was thrown. It was packaged in a message of hope and opportunity, so compelling it couldn’t be ignored: 100,000 jobs; $1 trillion dollars to the GDP; a $100 billion prosperity fund; the elimination of our provincial deficit; thriving hospitals and schools. And the end of our provincial sales tax.

"As we all know, that pass was caught and we now have a government that is trying to deliver on its political promises — whatever the cost and whatever the risk to our province.

"The problem is, the economics simply aren’t there to support an LNG industry on the scale of what was promised...

"We have seen Talisman sell its assets in BC, we’ve witnessed Apache pull out of Kitimat LNG and just this week we saw Petronas threaten to pull out of the Pacific NorthWest LNG project.

"...If we are to speak of leadership, as the Throne Speech does, then we cannot ignore one of the most essential qualities of any leader: Having the courage to be honest. Honest with British Columbians about the risks and consequences of government decisions, and honest about the reckless hype of government promises.

"Unfortunately, as the economics underpinning the government’s LNG promises continue to crumble, that courage—that leadership—is absent. And it is British Columbians who will ultimately pay the price.

"Petronas’ announcement this week is perhaps the best example of this. The announcement makes it clear that the only way we will land this industry is if we agree to their demands of lower taxes and minimal regulations. It is truly shocking to see a state-owned company try to pressure our government to give away our natural gas resources. Even more worrisome is to know that the real negotiations are all occurring behind closed doors. We will only know what has been given away as a cost of landing this political promise when it is too late to change course.

"Yet, the government’s gamble goes further than this. While our government doubles down on LNG, it is leaving other industries by the wayside. Our film industry, our high tech industry, our tourism and our forestry and fishing industries, are all being ignored by a government that is dead-set on its LNG ambitions.

"The fact is, this government has no back-up plan. We have staked our jobs, our health care, our education, our debt repayment and so much more, all on the gamble of an LNG windfall...

"Our challenges are too big, and the consequences too profound, to ignore the evidence. We need a new vision for B.C.—one that begins with true leadership—leadership that is grounded on the courage to be honest with British Columbians, to recognize our overzealous promises and to move forward responsibly..."
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Saturday, October 11, 2014

Words and meanings

BC Liberal Throne Speech:
“The core services this government provides need to be protected, and the inescapable truth is that they can only be protected if we can afford them.”
The core services this government provides [ like subsidizing business, funding the Premier's trips and photo ops, employing hundreds of spinmeisters, paying extravagant executive salaries and pensions and giving away natural resources ] need to be protected, and the inescapable truth is that they can only be protected if we can afford them, [ so that requires higher MSP & ICBC premiums and increased BC Hydro rates, ferry fares, carbon taxes, transit taxes, fuel taxes, municipal taxes and cuts to Pharmacare benefits. ]

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Friday, October 10, 2014

Repeaters, not reporters

Ever notice that corporate media seems to speak with one voice? On balance - or rather, on lack-of-balance - they do. It is the voice of big business.

Vaughn Palmer, with American shale gas boom a major threat to B.C. exports, is the latest columnist lobbing fat pitches into the wheelhouse of natural gas promoters. Given the headline, for a moment I hoped Palmer would note that technology responsible for North America's gas glut is being applied in Eurasia, meaning growing supply and declining prices there too, something that should be a caution to custodians of BC's gas resource who are negotiating financial agreements with foreign companies. Not quite. The Explainer had a different purpose.

Palmer heard the Throne Speech say that the U.S. gas market "has dried up and is never coming back." Testing the claim, he asked the Ministry of Natural Gas Development. They told him it was "entirely realistic." Seeking independent confirmation, Palmer asked the Liberal Minister most responsible for gas, Rich Coleman.

After this in-depth examination, the Sun columnist concludes the gone-and-never-coming-back scenario "would be disastrous for British Columbia" because,
"the province realizes hundreds of millions of dollars in royalties in a good year, plus it can count on hundreds of millions more in the sale of leases for future exploration and development."
Mind you, had Palmer relied on facts instead of the Liberal spin machine, he might have avoided egregious inaccuracy. The natural gas industry is not a contributor of many hundreds of millions of dollars a year for royalties and hundreds of millions more from rights purchases. Palmer is plain wrong and he should know better since he has access to audited accounts that reveal a different picture. He would be better informed on natural resources if he read the archives of this blog.

Net of the increase in unrecorded credits owed producers, gas royalties in fiscal year 2013 were $9 million. The net was $130 million in fiscal year 2014. Additionally, the government has been spending more than $400 million a year promoting and not-regulating the gas industry.

Ministry of Energy, Mines and Natural Gas reports reveal that the sale of leases for future exploration and development is not any longer a major contributor to provincial accounts. In the first seven months of the current fiscal year, crown petroleum and natural gas rights tenders brought in a monthly average of less than $12 million, down a third from the previous fiscal year.

A Hidden Cost
Additionally, Palmer repeats gas dependent employment claims that are fictions of the BC Liberals, despite reports from BC Stats and Statistics Canada that reveal much lower numbers. Even if the jobs number quoted in the Sun were true, each position would come at a cost to government of more than $60,000 a year.

Palmer and others in media, including Globe and Mail columnist Gary Mason, aim to lower expectations created by pre-election lies of the BC Liberals. However, the pro-media scribes go further. They're now selling the idea that, even if there are no riches to be gained from LNG, the proposed projects must proceed or a huge part of the BC economy will die. The real certainty is that any ride conducted by untrustworthy and incompetent guides is headed for catastrophe.

Uncertain gas markets mean price instability. As a result, potential exporters aim to protect their own fortunes from risk. That means guaranteeing little or nothing for the actual commodity, demanding subsidies for capital costs, provision of publicly funded transport infrastructure, relief from import barriers affecting machinery and personnel and exemption from property taxes, carbon levies and local imposts. The objectives are to minimize up-front and fixed costs and to ensure amounts due government are paid through profit sharing, which multinational gas companies will commit to if they can make the calculations.

The Guardian described tricks of high finance that were refined by but not confined to the movie business,
"through the miracle of Hollywood accounting, a studio may fairly claim that a huge hit hasn't actually turned a profit, lest they be forced to pay the stars, director or writers the percentage of the earnings to which they may be contractually entitled."
Only people outside the entertainment business are surprised to learn examples of Hollywood accounting.
  • Despite making over $938 million at the global box office, 'Harry Potter And The Order Of The Phoenix' was adjudged to have actually lost $167 million.
  • The third Star Wars movie, Return Of The Jedi, despite earning over half a billion dollars in revenue, is not in profit.
Last year, investigative news agency ProPublica published a report titled, How Oil and Gas Drillers Avoid Paying Royalties
Chesapeake Energy, the company that drilled [dairy farmer Don Feusner's] wells, was withholding almost 90 percent of Feusner’s share of the income to cover unspecified “gathering” expenses and it wasn’t explaining why.

“They said you’re going to be a millionaire in a couple of years, but none of that has happened,” Feusner said. “I guess we’re expected to just take whatever they want to give us.”
At hearings in Pennsylvania, landowners complained they’re being cheated out of royalty payments. A legislator asked where the specific point of sale is for natural gas. The industry's answer,
"It's complicated. It could be the wellhead. It could be downstream. It’s an intricate and complicated structure of contractual arrangements.”
Palmer repeats another Liberal falsehood about natural gas, quoting Rich Coleman,
"You have a resource that is so large that you could supply the North American market for 200-plus years, all your customers, and still have gas left."
Three months ago, when the government was still promising 100,000 LNG jobs, the Premier's Office published a press release that included,
"British Columbia’s natural gas potential exceeds 2,900 trillion cubic feet. This potential supply could support domestic and international project operations for over 150 years."
However, the BC Oil and Gas Commission, in the most recent report on Hydrocarbon and By-Product Reserves in British Columbia, sets remaining reserves at 40.2 TCF. A knowledgeable person provided this information to me,
"Potential reserves are no where near what is ever recovered. Not even close.

"The figure quoted in the press release is 72x the amount of proven reserves.

"It's about P1, P2 and P3 reserves. P1 is proven. P2 is proven plus probable and the most likely amount to be actually recovered. P3 is all the stuff that's under the ground and is a figure everyone in industry knows will never come close to being recovered (you cannot recover 100% of the stuff under the ground, not ever."
I believe it inexcusable that political columnists act as uncritical promoters of the fossil fuel industry and apologists for a government that is devious and untrustworthy. Doing so is an abdication of professional obligations.

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Tuesday, October 7, 2014

Pretending less is known than we know

At times, I wonder if mainstream political journalism in BC is written by the uninformed for the uninformed. Gary Mason provided an example to consider when he commented on the latest threat directed at BC Liberals by Petronus, an Asian energy company.
"While senior officials in the government tried to play down that threat, it had the desired effect. According to senior government sources, the province has dialled back its LNG tax revenue expectations. And it is also trying to find ways to relax environmental codes of practice that would add to the cost of doing business in the province for Petronas and others."
Anonymous government sources are occasionally useful but problematic when information conflicts. People whispering to Mason shouldn't be playing down tactics of intimidation and admitting those same tactics are working. But, confusion is almost certain to arise when messages reflect immediate political expediency rather than carefully considered policy.

Mason's article is less about examining the soundness of a policy set or the credibility of its political managers than it is about the newspaper facilitating whatever course Liberals may eventually take.
"Premier Christy Clark has staked the economic future of the province on LNG development. Even if it doesn’t end up being the trillion-dollar opportunity she has touted, the one that is going to wipe out the provincial debt, some LNG development is better than nothing."
What Mason presents as inarguable is a consistent message of government. Any economic development is better than nothing. That's similar to the logic presented unpaid interns churned through modern enterprises when they are told they might gain nothing today but they'll be better positioned for good times in the future, if and when those days arrive.

The Globe and Mail columnist does not examine the economic road Christy Clark and her associates travel upon nor does he consider alternatives. In the online version of Mason's column is a link to Justine Hunter's B.C. touts LNG's critical importance to provincial economy.

An inquiring reader might expect one of Toronto's national newspapers to test the credibility of BC government statements. Is LNG critically important if its existence would be dependent on untaxed feedstock, subsidized energy inputs, transmission and transportation infrastructure paid for by taxpayers, capital equipment financed through tax credits, exemption from carbon taxes, waivers of environmental and labour regulations and unlimited permits for foreign workers?

Is it a fact that "some LNG development is better than nothing?"

Mason goes on, excusing government uncertainty and misdirection,
"But the world of LNG has also changed since the last election when a thriving industry in B.C. was being imagined by the Premier. Prices have dropped. Competition has surged. The economic future of the commodity is unclear."
Those statements are disingenuous because the gas market has been undergoing change since well before 2013. Along with new energy transmission lines in Asia, production technologies that led to an oversupply of gas in North America are being implemented there, particularly in the region dubbed Pipelinestan by writer Pepe Escobar. The globe-trotting reporter wrote in 2010,
"Future historians may well agree that the twenty-first century Silk Road first opened for business on December 14, 2009. That was the day a crucial stretch of pipeline officially went into operation linking the fabulously energy-rich state of Turkmenistan (via Kazakhstan and Uzbekistan) to Xinjiang Province in China’s far west...

"The bottom line is that, by 2013, Shanghai, Guangzhou, and Hong Kong will be cruising to ever more dizzying economic heights courtesy of natural gas supplied by the 1,833-kilometer-long Central Asia Pipeline, then projected to be operating at full capacity...
Almost a year before the BC general election, I wrote "Our pending meltdown" at Northern Insight. The only thing certain about the prospects for trading natural gas was uncertainty. The article, now more than two years old, is repeated here:

Are BC Liberals about to drag taxpayers into another economic calamity? Something akin to BC Hydro's private power initiative, where government has taken near $50 billion of financial risk and guaranteed abundant profits to private energy promoters.

[Russia's] Gazprom Biggest Loser as Shale Gas Upends World Markets, Bloomberg Businessweek, June 21, 2012
"...The U.S. no longer needs Russia’s gas, leaving President Vladimir Putin fighting to salvage Gazprom’s $20 billion Shtokman project in the Arctic. China, the biggest energy consumer, is exploring its own shale reserves and hesitating to accept a pipeline from Russia. Gazprom’s shipments fell about 14 percent so far in 2012...

"Russia, with about $13 trillion of gas deposits, has the most at stake in the energy revolution that’s blasting shale from Pennsylvania to China in rocks impossible to drill just a decade ago..."
China shale gas boom could surpass U.S., Reuters, Dec. 7, 2011
"China is set for a shale gas revolution which will surpass that seen in the United States, the chairman of Sinopec, the country's second-largest oil company, said a day after Reuters revealed Royal Dutch Shell Plc had begun shale gas production in China.

"Fu Chengyu, chairman of state-controlled China Petroleum & Chemical Corp (Sinopec) , said it could take five to 10 years but that China's output would exceed that of the United States.

" 'I think the total reserves are even more than the U.S. so production is not less than the U.S., but it is a matter of timing,' he told reporters at the sidelines of the World Petroleum Congress.

"U.S. energy markets were fundamentally changed by the development of shale gas. In the space of several years, the country went from natural gas shortages to a point where companies are planning to export gas to Asia, ..."
Site C and the Kitimat LNG Export Terminal: Christy Clark’s Program for Income Redistribution, Jim Quail's Blog, February 8, 2012
"...[Producers] are in a mad rush to suck the gas out of the ground and get it to China before the Chinese start exploiting their own huge shale gas reserves on a major scale: once that happens, there will be no Asian market for tankers full of LNG. That gives the Canadian developers maybe a bit over a decade to make their money and run.

"It takes a lot of energy to liquefy natural gas. Almost universally, around the world, LNG plants use a portion of their own natural gas supply to provide that energy. It appears, however, that BC Hydro is prepared to supply electricity, at BC’s below-cost industrial bulk energy rates, to the Kitimat LNG consortium, for their liquefaction operations.

"So what’s the big deal, you ask?

"The initial phase of the Encana plant would require about 250 MW of electrical generation capacity to provide it with sufficient energy. The three projected Kitimat LNG plants would require about 1,600 Megawatts of power to liquefy its billions of cubic feet of gas for export.

"How much power is 1,600 MW?

"About one-and-a-half Site C dams is how much power.

"Hydro would sell that much power to one corporate mega-project, at industrial tariff rates of around $35 per megawatt hour. That same power would cost Hydro at least $80 per MWh, assuming they built one-and-a-half Site C dams for that purpose, or around $129 per MWh if they bought it from Independent Power Producers. So we’d pay for Site C, through our Hydro bills, to sell the electricity it produces for less than half what it cost us..."
H/T Bob Makin, by Twitter, for the Bloomberg Businessweek article

Please visit Jim Quail's blog, an excellent one, for additional information about energy.

Energy critics roast Clark's LNG strategy, Frank Luba, The Province, June 22, 2012
NDP energy critic John Horgan believes Clark's changes should have been debated in the legislature.
"She's going to amend the Clean Energy Act by regulation," said Horgan. "These are detailed and generational changes we are making and we should do that with a thoughtful eye, not with an expedient political eye and that's what she did," he said."
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Monday, October 6, 2014

At BC's Public Accounts Committee

An excellent recap of the reasons behind the call for individuals to appear before the Public Accounts Committee to explain extraordinary financial transactions.

Sept 15 2014 SSC PAC Corrigan to Ralston

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Friday, October 3, 2014

$6.2 million inducement ended BCR corruption trial

A study¹ in the Journal of Criminal Law and Criminology examined plea bargaining and innocence. It revealed,
"...that more than half of the innocent participants were willing to falsely admit guilt in return for a benefit. These research findings bring significant new insights to the long-standing debate regarding the extent of plea bargaining’s innocence problem."
A widely accepted standard of law requires that guilty pleas shall not result from improper inducement, such as bribery. A publication by the Public Prosecution Service of Canada states,
"It is important to note that prosecution agencies and law societies across Canada, as well as the Criminal Code, provide some relevant guidance to lawyers working in the criminal justice system. For example, in the Deskbook of the Public Prosecution Service of Canada, the chapter concerning plea and sentence discussions and issue resolution indicates that Crown counsel’s approach to resolution discussions must be based on important principles, including fairness, openness and accuracy..."
In the BC Rail political corruption case, we are expected to believe that two separate plea negotiations involved Basi and Virk but that only one needed review by the trial judge. $6.2 million was paid by the Liberal Government to defendants, a move that ended the BC Rail trial "on the eve of what was expected to be explosive testimony by former finance minister Gary Collins."

If Justice Anne MacKenzie did not know about the $6.2 M inducement, the test of fairness and openness was not met. If the judge did know that a substantial payment for the benefit of defendants was a vital element of the plea agreements, it should have been rejected, in accordance with Supreme Court of Canada directions. I believe MacKenzie chose to ignore the cash inducement and accept very lenient terms of sentencing so that the trial could end. Soon after, she was elevated to the B.C. Court of Appeal.

That Basi and Virk walked with a minimum of inconvenience is not particularly bothersome since they were in court as sacrificial lambs following corruption that extended broadly. However, it is entirely inappropriate that their political masters paid no price and now Liberals use control of the legislature to ensure a continued lack of transparency.

This week, NDP MLA Kathy Corrigan, a member of the Public Accounts Committee, made a motion,
"That Mr. David Loukidelis and Mr. Graham Whitmarsh be requested to appear before the committee with respect to additional questions relating to the committee’s continued consideration of the Auditor General’s report titled An Audit of Special Indemnities."
The vote, with NDP MLA Bruce Ralston in the Chair, was predictable, with BC Liberals against and others in favour:
  • - LIB, Maple Ridge-Mission
  • - LIB, Shuswap
  • - LIB, Prince George-Mackenzie
  • - LIB, Port Moody-Coquitlam
  • - LIB, Vancouver-False Creek
  • - LIB, Chilliwack-Hope
  • - LIB, Richmond-Steveston
  • - NDP, Burnaby-Deer Lake
  • - NDP, Vancouver-Point Grey
  • - NDP, Coquitlam-Maillardville
  • - NDP, Vancouver-Hastings
  • - IND, Delta South
Ms. Huntington, a thoughtful and effective independent MLA, said this to the committee,
"Undoubtedly, the Auditor General's office did an enormous amount of work. It was with a narrow question in mind, however. It did not pursue the relationship between the plea bargaining and the lifting of the indemnity — or the indemnity. Thus, it leaves open the questions that are being pursued right now.

"All that being said and my discomfort that this committee would be pursuing it in this manner, I do think there are issues here that have never been explained to the public, which the public is deeply concerned about — always have been and still bring it up if the issue arises in any way, shape or form, at least to me.

"I think there is an issue of transparency here that if we can resolve would be to the benefit of the public. As difficult as the decision has been to me, I will support it — the motion — because I believe the public deserves the transparency that this discussion might provide them."
Lew, a reader and occasional commenter, has been following this issue closely and expressing himself to members of the Legislature. I think his recent correspondence is worth repeating:
"This is written in regard to the September 30, 2014 proceedings of the Select Standing Committee on Public Accounts considering the Auditor General Report: An Audit of Special Indemnities. You have all been previously copied on my January 20, 2014 letter to the Auditor General, and I wrote you on July 07, 2014 with further observations and questions, so I will not repeat them here.

"When I wrote him with questions on his report, the Auditor General responded that he was not at liberty to provide any answers except to the Select Standing Committee on Public Accounts, within the scope of the audit or his mandate. I therefore forwarded my questions to the Committee with a request that my questions be asked. To this date the questions have not been asked of him, nor of any other persons before the Committee. In addition, several members of the Committee have expressed that they have outstanding questions. This is obviously a very unsatisfactory situation given the public’s right to know.

"This morning [9/30] a motion was moved to take steps to assist in that regard but it was voted down by the BC Liberal members of the Committee.

"To members Corrigan, Huntington, Eby, Simpson, and Robinson, I extend my appreciation for your efforts to date, and a hope that you do not consider this matter over.

"To members Morris, Sullivan, Dalton, Kyllo, Throness, Yap, and Reimer, I would like to say that you have earned my contempt for your actions. My feelings would not be as strong if there were any of you who had answers the questions I have asked. But you do not and none of you appear interested in obtaining or sharing them in any event. That is contrary to your duty both as an MLA and as a Committee member.

"There were two plea deals negotiated in this case.
  • One between defence counsel and the special prosecutor involving pleas and sentencing recommendations, disclosed to the court through a joint submission and a Statement of Facts.
  • And another between defence counsel and the government represented by the Assistant Deputy Attorney General (ADAG) dated October 14, 2010 involving guilty pleas in exchange for release of financial liability, which was not disclosed to either the special prosecutor or the court.
"The Auditor General says in his report auditors were told that the guilty pleas negotiated between defence counsel and the special prosecutor would never have been entered by the defendants but for the prior plea deal (October 14, 2010) between the ADAG and the defendants.

"MLA Morris says, “I think, to David Eby, that assumptions are made that this $6 million was used as an inducement to plead guilty. We don't know the discussions that took place between counsel and the special prosecutor in this case, and they're the ones that negotiated the guilty plea. We will never know what those discussions were all about. As a former police officer, I've been intimately involved in plea bargaining in the past.”

"The discussions between the special prosecutor and defence counsel are not the issue here. The issue is the October 14, 2010 plea deal between the defendants and the ADAG to extinguish the special indemnity agreements by way of an Agreement to Release in exchange for guilty pleas and how that affected the course of justice. And we do in fact know quite a bit about that agreement and the surrounding discussions from the Auditor General’s report.

"Notwithstanding MLA Morris’ reference to the wrong discussions, he has tendered to the Committee his expertise as a police officer with intimate knowledge of plea bargains. Perhaps he would be prepared to assist the Committee’s understanding of how these work in practice by advising:
  • how many plea bargains he witnessed or was a part of that involved securing guilty pleas through cash payments by the Crown to the defendants;
  • the amount of the highest cash payment;
  • whether the court was advised of these payments made in exchange for guilty pleas; and
  • what action he took as a police officer regarding these payments.
"In the event MLA Morris has no plea bargains of this nature to report in his experience, perhaps he could advise the Committee why that would be, whether one of that nature would be illegal, and what the duty of the Committee would be if it discovered through its deliberations on the Basi/Virk indemnities that government officials may have been party to such a plea bargain."
¹Lucian E. Dervan and Vanessa A. Edkins Ph.D., The Innocent Defendant' s Dilemma: An Innovative Empirical Study of Plea Bargaining' s Innocence Problem, 103 J . Crim. L. & Criminology 1 (2013).

From the platform document "A New Era for British Columbia"

Where BC. Liberals' ethical code is written.

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