Canada

A show of power from King Peter

Robert Lewis November 26 1979
Canada

A show of power from King Peter

Robert Lewis November 26 1979

A show of power from King Peter

The Nation

Robert Lewis

Joe Clark’s sitdown with the premiers on energy was drawing to a close when Peter Lougheed emerged from the PM’s book-lined study after making a telephone call. The lights flickered—then went out. If Lougheed was innocent of the blackout in the Sussex Drive study, two days later in Saskatoon he was the direct cause of the darkness that descended on Clark’s hope for a settlement last week of a new energy package. In a week of muffled bitterness and confrontation between Clark and the Alberta premier, no amount of verbal gymnastics could obscure the depths of the split on the new price for oil. Clark’s boasts of a new era in dealing with the provinces were in precarious balance amid signs that a | settlement may be months away. Fi^ nance Minister John Crosbie described § prospects for accord as “a remote hope” and declared his intention that, even without new oil revenue numbers, he will go ahead with a budget Dec. 11. “I can’t wait any longer,” he avowed, reflecting Ottawa’s impatience with Lougheed’s unblinking demands.

The discussions about how to divvy up a multibillion-dollar bonanza that will flow from moving Canadian prices to world levels is now back on the drawing boards in the back rooms. When the shades are finally lifted, the dawn will reveal more than the stiff new tariff for Canadian consumers at the pump; it will confirm a resplendent Peter Lougheed as the new national power broker, with the resource-based influence to play a major role in shaping the Canadian economy in the 1980s. If Joe Clark is to have his “fresh face on federalism,” Peter Lougheed will wield the scalpel.

Two unresolved issues are the size of the price hike—$4 or $5 per barrel—and who gets how much from increased revenues on oil and gas, which is now pegged at 85 per cent of the oil equivalent price.

The numbers on the table are staggering. A Calgary oilman jocularly guesses that $1 billion, stacked in $100 bills, would stand as tall as the 33storey Dome Tower in downtown Calgary. A $4 boost per barrel (35 gallons), which Ottawa favors, would generate roughly $26 billion more in oil and gas revenues between 1980 and 1985enough to build four new oil sands plants. Under the existing tax and royalty regime, the provinces’share of the

industry’s $9.2-billion operating income last year was 46 per cent (or $4.3 billion). The corporations, largely foreignowned, took 44 per cent ($4.1 billion) while the federal bite was only 9.5 per cent ($876 million). Fully 30 per cent of Alberta’s share goes into the Heritage

Fund, an overstuffed savings account which, by next March, will stand at a staggering $6.2 billion. A $4 increase in price between 1980 and 1985 could create a kind of Saudi Alberta, with additional provincial revenues of $25 billion.

King Peter, understandably, has big plans for using the revenues from fastdepleting oil reserves to secure a better future for his approving followers—and he suggests that all Canadians will be indirect beneficiaries. But, as he told

Maclean's in a Calgary interview late last Friday (see box), “it won’t be an economy dominated by Ontario. It will be a different country at the end of the next decade—but a very stronger country, particularly in economic terms relative to the United States.”

Beneath Lougheed’s fierce commitment to a strong Alberta there is, as well, a thinly veiled determination not to bow to Clark. A decade ago Clark worked as a lowly aide to Lougheed and ran for the Conservative leadership only after Lougheed opted not to seize the job that was his for the announcing. In private, Lougheed reportedly dismisses Clark as a lightweight (“No comment,” says the premier) and there is no doubt that personal power is a major source of his single-mindedness. “As Machiavelli shows,” notes one veteran of the regime, “no politician ever surrenders his power—it can only be taken away.”

Lougheed reacted in the manner of the block bully—and Clark like his victim—when Ottawa last week revealed its plans to impose a “self-sufficiency tax” at the wellhead—“50 per cent of incremental revenues” above a $2 price hike per barrel. Ottawa proposed that Alberta get 45 per cent and the companies only five per cent. Over four years, Ottawa planned to channel 25 per cent of the take (or $500 million) to a new Canadian energy bank, the funds to be used, Petro-Canada-revisited style, to “Canadianize” the industry and to encourage exploration. Ottawa also plans to impose a 10to 15-cent levy on each gallon of gasoline, now among the cheapest buys in the world (see graph).

The assumption is that the windfall of more than $2 billion will be used to meet the government’s campaign promises.

Lougheed flatly rejected the self-sufficiency tax on his return to Edmonton. “Federal tax measures,” he argued in defence of provincial ownership under the British North America Act, “cannot be designed as a means of skimming off resource revenues which belong to the people of Alberta.” Instead, said the premier, the feds should tax company profits—after Alberta has taken its royalties.

In an encounter with reporters during a two-day western swing, Clark made out that a profits tax was what he had in mind all along. But he and his stumbling energy minister, Ray Hnatyshyn, were not convincing as they fled from a meeting with Lougheed and his energy minister, Merv Leitch, in a dingy, cinder-block motel in Saskatoon. Most experts, including federal officials, doubt that Ottawa can raise the same amounts from a profits tax—certainly not as readily—if only because companies are past masters at reducing their income through generous federal and provincial exploration incentives and depletion allowances. Some, such as Shell, don’t pay any tax at all. At week’s end, Crosbie seemed closer to candor when he admitted that without a tax of the kind favored by Ottawa, Clark’s goal of self-sufficiency by 1990 may have to be scrapped.

With the crisis in Iran entering its second chilling week, Clark did manage

to rally support on other fronts. Most premiers backed his push for a phased increase to world price (now $25.70 per barrel landed at Montreal, versus $13.75 for Canadian oil). The PM hardly needed to warn of the dangers of Canada’s growing dependence on imported oil ($1.8 billion last year) and the $500-million tab for subsidizing the price of those imports at Canadian price levels. Without a change in the status quo, imports of 270,000 barrels per day in 1978 could rise to 640,000 barrels per day by 1985. But higher prices also will mean more inflation, unemployment and, according to the Economic Council of Canada, another $3 billion in the federal deficit in six years if the price goes up $4 per barrel. Clark conceded that “there are more immediate losers than winners from the oil price increases.” But he added: “Unless we act today, everyone loses tomorrow.” There were no voiced protests to other measures Clark unveiled:

• A $310-million subsidy on oil burned in Atlantic Canada to produce costly electricity, the prospect of using the energy bank to fund extension of a pipeline to the East Coast for Alberta gas and incentives to gas companies to expand their markets east of Toronto.

• Conservation programs of $1.3 billion, including restoration of the previous government’s home insulation program (CHIP), which Clark now plans to turn over to the provinces.

Ontario Premier Bill Davis emerged as the new supplicant of the union at the conference, the first four hours of which were televised mainly for him to

be seen mounting a defence of Ontario industry and consumers. Davis said that “an excessive and imprudent” $4per-barrel hike in price and an excise tax on gasoline would “raid” $700 from “every household in Canada” next year. The federal gas excise tax was nothing more than “an excuse to raise billions of new tax dollars for general government purposes.” Worse, the planned increases “risk a national recession” and threaten to jam Ontario’s economic engine.

It was Peter Lougheed who captured the defiant new attitude of Western Canadians when he dismissed Davis’ pitch as “illogical” and “not in touch with stark reality.” That a proud Ontario premier, who happens to be a fellow

Conservative, could be pistol-whipped in public by Lougheed is testimony to Ontario’s new subservience to petro power. British Columbia’s Premier Bill Bennett went even further, calling, in effect, for an exodus from Eastern Canada. “We must,” he declared in the face of Canada’s historic protection of regional economies, “move people to jobs, not jobs to people.”

It was 122 years ago that North America’s first oil well came on stream—at Oil Springs in Ontario, on land purchased by an American entrepreneur from a Canadian who couldn’t make a go of his sticky “gum beds.” Nearby oil was discovered at Enniskill-

en, which was promptly renamed Petrolia, “the oil capital of Canada.” But by the end of the decade, competition from American producers reduced prices and the Canadians began selling out— among them Imperial of Petrolia to Standard of New Jersey. Soon the oil was gone and, now, Petrolia might as well be called Enniskillen again. On Monday, when Joe Clark hosted lunch for the premiers at 24 Sussex Drive, along with the porc Charcutière he served a modest Ontario vintage which, with two changes in spelling, was an unnecessary reminder of Ontario’s former petro glory. The label was Inniskillin Seyval Blanc. For Davis, the only consolation is that it costs $1,041.60 per barrel,