By Letter to the Editor on March 13, 2019.
The royalties oil companies pay government earn zero attention in mainstream media. It is one of the most compelling reasons why oil corporations are desperate to continue to expand a dying industry despite the gloomy economic forecasts.
The breakdown: Because the Government of Alberta owns the oil under the ground, they charge for the rights to extract these resources. But, the companies can reduce the rates they pay if É (drumroll) they commit to “capital expansion projects.”
The royalty rates are reduced as long as that project continues to expand and builds out its infrastructure. Royalties are anywhere from one to nine per cent when paying out capital costs, but then they jump to 25 to 40 per cent when costs have been recovered. So stopping expansion means paying some profit to government.
This regime, that clearly rewards expansion, was put in place decades ago during a time oilsands were trying to prove themselves as a viable producer. As a high-cost producer in a world awash in cheap oil, the oilsands are not as profitable unless they can credibly make an argument for continual expansion.
In sum, the Alberta royalty system encourages continued expansion despite analysis showing there is no need for additional pipelines to service existing production. The desperate demands for new pipeline infrastructure are driven by the need to continue expansion, at taxpayer cost. Oil corporations want government to continue subsidizing while privatizing profits. Jack Mintz and Jason Kenney even suggest removing corporate taxes!
Building Kinder Morgan is less about creating jobs or getting Canadian crude to new markets than about maximizing the profitability by exploiting a loophole that maintains almost criminally low royalty rates on a publicly owned good. Oil and gas pay less than the interest on our government loans, while making over $80 billion per year profit. The government takes $4 billion, while giving it back for incentives to business. Saudis demand 50 per cent royalty, and refine their own oil.
So, why not increase the royalty instead of borrowing money to maintain government services?