Energy: Canada

The secret numbers in Alberta’s sweet new deal

Roy MacGregor November 12 1979
Energy: Canada

The secret numbers in Alberta’s sweet new deal

Roy MacGregor November 12 1979

The secret numbers in Alberta’s sweet new deal

Energy: Canada

Roy MacGregor

In 1956, a 17-year-old Grade 11 student from Alberta eased back onto an oak seat in the spectators’ gallery of the House of Commons and watched history written within reach. He had come to Ottawa courtesy of the Rotary Club, a public-speaking winner in their “Adventure in Citizenship” program, and he sat entranced as the debate of the decade raged below. The anger concerned energy, its delivery, its financing, and eventually the “Pipeline Debate” would have its special say in the following year’s election. Long after that, in the peculiar manner words have

of arriving unannounced in his mouth, the student—whose name was Joe Clark—would say that this was the moment his “interest in politics became articulate.” And he may be reminded of it again as today, 23 years later, in the same forum but a decidedly different seat, the debate is again over energy. If the Rotary were sponsoring it, however, the title this time out might better be “Adventure in Leadership.”

Leadership, in fact, is as much a part of the present energy debate as is oil. Late last week Maclean 's gained access to a fascinating 12-page document. Marked “secret” and entitled Outline of Initial Stage of National Energy Strate-

gy, the paper is said to be the third, and possibly final, working paper covering the negotiations between Ottawa and Alberta over the coming price increases. It reveals that Clark may be prepared to accede to nearly all Alberta’s bargaining demands. And, intriguingly, the price changes may arouse far less anger among politicians than will the recommended royalty split, with the oil producers and Alberta getting both the lion’s and the lioness’ share of the estimated $14 billion the consumer will be out of pocket. A source close to Prime Minister Clark claimed an agreement is “99 per cent there,” and a special first ministers’ conference is in the process of being called for, probably, Nov. 12. According to the four-page “memorandum of understanding: Alberta’s contribution to the national energy strategy,” which is tacked on to the end of the document, the domestic crude oil price will rise gradually on a four-year schedule— $1 on Jan. 1, $3 on July 1, 1980, and $2 per barrel every six months thereafter

“until the delivered price of domestic oil in Toronto-Montreal reaches 90 per cent of the U.S. average price in Chicago.” With the price today at $13.75 a barrel, it would therefore rise 120 per cent by July 1,1983, the end of the agreement, when domestic oil would cost a staggering $29.75 a barrel at the wellhead (see graphs).

It may, however, go even higher. A key element of the document is the phrase “90 per cent of the U.S. average price in Chicago.” That price today is $18.72, and President Jimmy Carter has promised that U.S. prices will rise to world levels (currently reaching up to $27 in Montreal) by 1981. The secret document—intriguingly using the 85cent Canadian dollar in all its calculations through 1983—predicts that a barrel of foreign crude oil will sell for

$36.93 on July 1,1983, whereas the Chicago price will be even higher then, at $38.01 a barrel. It is therefore possible to conclude that Canadian prices might one day rival world prices, yet remain slightly below U.S. levels. Such a remarkable scenario would permit Joe Clark the luxury of living up to his Tokyo summit promise to raise domestic £ prices to world levels while at the same o time arguing that Canadians are better § off than Americans. o

Surprisingly, as the final decision j comes closer to completion, price may 2 not be even the most disputed point. £ With a $4-a-barrel increase being pre2 dieted since late summer, most Canadians are resigned to paying at least $1.99 for a gallon of gas by 1983. They may not, however, be anticipating some of the other suggestions contained in the report, including:

• A proposed royal commission “to study the distribution of revenues in Canada.” For now, however, the document proposes that the controversial 45-45-10 split in royalties will remain45 per cent going to the producing provinces, 45 per cent to industry and 10 per cent to Ottawa.

• An excise tax for conservation which, the document argues, “would be substantially increased.” This, presumably, covers the 30-cent-per-gallon tax increase on gasoline about which Ottawa has been talking and which Ontario Premier William Davis has already labelled “a wilful attack” on his province. It is estimated that Ottawa would reap between $1.4 billion and $1.5 billion annually on every 10 cents of

increased levy, and more than $4.5 billion a year would go a long way toward paying off such vastly expensive campaign pledges as the mortgage deductibility scheme, $2 billion in personal tax cuts and other assorted goodies.

• Creation of a national energy bank, at one time intended to be owned by Alberta, now likely to be run by annual $400-million-a-year loans—at commercial rates—from the Alberta Heritage Fund. Alberta and the bank would be encouraged to promote further exploration-some might call it the public sector of Petro-Canada in drag—and would probably be involved in the stated objective “of 50-per-cent Canadian ownership of major energy projects.”

The paper also speaks of “industrial conservation assistance in the Atlantic region” and talks fleetingly of “a program to help the consumer with the increased costs of energy (such as an energy tax credit),” but the essential point is that—should this agreement eventually be signed—Alberta and the oil companies will have won the day, handily. It is a long way from this past summer when officials of the department of energy, mines and resources went to the Prime Minister’s Office and spoke hopefully of even more government intervention along the Petrocan model to help erase their own serious doubts that Canada could, as Clark has promised, attain energy self-sufficiency by 1990. The department naively believed they had won over new Energy Minister Ray Hnatyshyn. The PMO, however, found that such ideas were “unacceptable.”

The Tory thinking, as Petro-Canada supporters discovered last month, is that it is with an encouraged private sector that the best chance for self-sufficiency lies. Eliminating the need for any imported oil by 1990 will cost, by most estimates, around $200 billion, and the Conservatives feel that the previous Liberal strategy of allowing only $l-abarrel raises every six months would

never provide industry with the capital that industry argues is necessary for further exploration. Party strategists point to West Germany and Japan as examples of countries that accepted the dramatic tripling of oil prices in late 1973, reeled for a while and then recovered. “We put off swallowing the energy bubble for the next generation,” says a Clark aide. “They took their lumps right away. Our approach of nickel-anddiming consumers to death had no effect. Somewhere, you’ve got to raise $200 billion.” Officials of the PMO also gratefully embraced last week’s annual report from the Economic Council of Canada, which also called for an oil price boost of $4 per barrel each year.

That was a fortuitous coincidence, but it did nothing to offset the escalating battle between the biggest producing province and the biggest consuming province. In August, Ontario Premier Bill Davis had complained that a $5-a-barrel rise in price would add 2.2 per cent to inflation. Davis offered his own cautious price-raise plan, which was immediately panned as “completely unacceptable” by Alberta Premier Peter Lougheed. Since then, Lougheed has got tougher. He recently told an Edmonton fund-raising crowd that Alberta was fully involved in a “confrontation ... You’d better be prepared to batten down the hatches.” Next day Davis said he was doing a “slow burn” over Lougheed’s “allegations about Ontario’s greed,” and he countered Lougheed’s complaint that Alberta has subsidized (in lowered oil prices) the rest of Canada to the tune of $15 billion with the argument that be-

tween 1967 and 1977 Ontario paid out $16 billion in transfer payments. Lougheed punched back, calling the Ontario argument “ridiculous, repugnant and disturbing.”

After Lougheed strongly hinted that Alberta would either get the price it wanted for its oil or not sell it at all, the squabble surfaced in Ottawa. Opposition leader Pierre Trudeau was standing in the Commons defending the $1a-barrel increase he had negotiated. Earlier, to an obscure audience of Ottawa West Liberal party supporters, he had even threatened to bring down the Clark government on the energy issue. Clark, meanwhile, with Finance Minister John Crosbie urging him to reach a price agreement so that Canada could get on with his overdue budget, was saying agreement would come soon or else Ottawa would act unilaterally, as it is empowered to do under the British North America Act.

Any battles in the past had clearly drawn lines: federal Liberals versus provincial Tories. If it is possible to take Joe Clark at any of his campaign words there is supposed to be “a fresh face on federalism.” Only last Friday he told a press conference in Ottawa that his party represented “a change of attitude-treating the provinces as equal partners.” The bitter fight that has been brewing between Lougheed and Davis is out of sorts with such promises—as is the impression that, should this document be accepted, Ottawa has given in to all Alberta’s demands. Tory blood brothers are not supposed to spill the very liquid that binds them (see box page 26 ).

Unless, it has been suggested, Canadians are seeing what Liberal House leader Allan MacEachen calls a “carefully stage-managed” bit of theatre. Bill Davis may find his minority government in an election come the spring and it would make good political sense to make it appear as if any concession, however small, that can be gained from Alberta could be credited to Davis’ anger. “We are now caught up with the politics of it,” says a Clark aide. “It will be convenient for everyone to blame somebody else and I guess we’ll be the villains.” Finance Minister John Crosbie put it even more bluntly when he told Maclean’s that “the thing is really, secretly, they know that you’re doing the reasonable thing. And they’re only opposing you publicly. They’re not going for your ...”

Davis, however, claims to speak in defence of the consumer, for whom the $4a-barrel increase will mean paying out about $2.5 billion, without even including the $4.5 billion or so the 30-cent-agallon federal excise tax increase will 5 cost. Early guesses are that the average ? Canadian household will be paying out ; around $220 a year in additional gasoH line and heating costs.

But statistics have not been the only changes, and in the months to come the difference between then and now may not be so much price as the changes in the country itself. In the early stages of the current negotiations Ottawa fought for a change in the 45-45-10 sharing agreement, hoping to split the second $2 of each annual raise 50-50 with Alberta. Lougheed himself recently labelled the federal government’s $ll-billion annual deficit as one of the system’s great weaknesses, yet the current agreement would hardly help matters. A study undertaken by a major oil company says that, if world prices are reached by 1985, Alberta will take in some $56 billion compared to the federal government’s mere $3.1 billion after deducting equalization payments and various subsidies. “To put it starkly,” says Professor Thomas Courchene, an economist at the University of Western Ontario, “why should Ontario’s residents be called upon to contribute $346 million each year to pay for the equalization that arises because Alberta is pocketing $4 billion annually?” The original idea behind equalization payments did not consider huge amounts of wealth going to producing provinces; had there not been a change in 1977 in the equalization formula, Ontario today would actually qualify as a “have-not” province and would be due $172 million in the current fiscal year.

Should the current agreement be-

come law, there will be accusations that Clark caved in to oil demands. Two weeks ago the oil industry, through its lobby, the Canadian Petroleum Association, urged an annual $4-a-barrel increase between now and 1983—precisely what will likely come to pass; and one high-ranking oilman recently told Maclean's that oil executives “had never had so much input” into a government decision. And though the sincerity of Lougheed’s threats and anger will never be measured, it will also be said that he somehow managed to bully Clark, much to the dismay—and coming election woes—of Bill Davis. Some will say Lougheed’s anger is a convenient cover for the fabulous deal he is about to strike. The only certainty, however, is that Joe Clark was again too eager in his election rhetoric. Assuming that a Tory plurality among the first ministers would lead to amicable agreements was naïve then and will not likely ever prove out.

Prime Minister Joe Clark was to begin this week with a Liberal nonconfidence vote on his energy policies threatening. But it is a fair guess he was less concerned about a sudden election than he was about the week to come, when he will sit down with two men he likes to call his “friends,” Peter Lougheed and Bill Davis, and a shaking hand tables the energy policy that will dictate prices for the next four years. At that moment, the “Adventure in Leadership” begins. ;£?