In the 1960s Saturday Night was a very popular Canadian magazine. Much of its success was due to its editor, Ralph Allen. Unlike Maclean’s Magazine of today, it was not a voice of the political establishment.
    Allen looked at the high degree of foreign ownership and control of the economy, our heavy dependence on trade with one country, and our emphasis on exporting raw materials and natural resources and declared that Canada was “The Northernmost Banana Republic.” He looked at U.S. political domination of Canada, based in our subordinate position in NATO, NORAD, the Defence Production Sharing Agreement and other military alliances and declared that Canada had no sovereign independence. He described Canada as “Puerto Rico North.

Saskatchewan as a resource colony
    If Canada is a Banana Republic, then what is Saskatchewan? Our leaders brag that we are no longer an agricultural province, dependent on exporting basic food products. Our strength, it is argued, is in the extraction and export of our natural resources.
    Yet all of our resource industries are dominated and controlled by large trans national corporations, most of them foreign owned. Even the nominally Canadian corporations, like the largest oil companies, the Potash Corporation of Saskatchewan, and Cameco, sell their stock on the New York Stock Exchange and are majority-owned by U.S. investors.

Excess profits in the oil industry
    So what difference does that make? Let’s look at the oil industry as one example. As everyone knows, the general international price for oil has gone from $20 a barrel in 2002 to $100 a barrel in 2007. We know that because we all pay that at the gas pump.
    But these price increases far exceed the increases in the cost of the extraction of oil, and the result is that the oil companies have record profits and so much cash on hand they don’t know what to do with it all. Economists call this “economic rent,” the monopoly or excess profits that are made from the extraction of a natural resource when the returns are higher than the general rate of return on invested capital.
    Around the world oil producing countries are increasing the royalties and taxes on the private oil companies to try to get a larger share of these monopoly profits. In almost all producing countries, the governments have taken the position that natural resources are a free gift from nature and therefore the benefits from their extraction should go to all the citizens, not just private investors. Almost every oil producing country has at least one state-owned National Oil Company (NOC), designed to capture as much of the economic rent as possible for the government. But not in Canada!

What is a fair return to the owners?
    What about Saskatchewan? We have had a consistent policy since 1982, covering the Tory government Grant Devine, the NDP governments of Roy Romanow and Lorne Calvert, and now the Sask Party government of Brad Wall. Policy should minimize the return going to the province and maximize the return going to the investors in the oil corporations.
    When private oil corporations seek the right to extract and use a natural resource like oil they must pay a fee to the general public for the use of the resource. These take the form of royalties and fees. In Saskatchewan during the NDP government of Allan Blakeney royalties and fees rose to 56% of the value of the sales of petroleum. Since then they have steadily declined in value. During the period of the recent oil boom, royalties and fees collected by the NDP government averaged only 15% of the value of petroleum sales. This royalty rate has been the lowest in Canada.

Alberta swings to the left
    In Alberta the legislature mandated that royalties from the extraction of oil should range between 20-25% of oil revenues. When the Provincial Auditor reported that they had fallen to only 19% in recent years, there were public demands for an increase, a special government-appointed panel to investigate the industry, and a government recommendation to raise the royalties by 20% to bring them back up to the level of the government mandate.
    We all know the result of this. The oil corporations vigorously protested. They threatened to take their cash and invest it somewhere else. But the question was always where would they invest? New areas to invest overseas were more costly, and there would be higher royalties and taxes to pay.

Conservative governments want more
    In December Newfoundland announced that it had signed a new deal with Husky Energy and Petro-Canada to further develop the White Rose offshore oil fields. There is a basic royalty of 30%. In addition the companies will pay a “super royalty” of 6.5% when the price of oil is above $50. This brings the total royalties up to 36.5%.
    The libertarian Republican government in Alaska recently announced that it was raising the basic royalty on oil from 22.5% to 25% and eliminating many of the key deductions and subsidies. The oil corporations grumbled.

Petro-Canada moves to Libya
    But the big news story is that Petro-Canada has announced that it is shifting its investment from Alberta to Libya. Petrocan renegotiated and extended its existing development contracts. For this it will pay $1 billion as a “signature bonus” to the Libyan National Oil company. All new developments will be in a 50-50 partnership with the Libyan NOC. While each of the two companies will contribute 50% of development costs, profits from these operations will be shared 12% to Petrocan and 88% to the Libyan NOC.
    What is the message here? Libya is a world power. Canada and Alberta are banana republics. Then there is Saskatchewan, where Petrocan has to cough up 15% in oil fees and royalties. All our political leaders agree: there is no reason to open any discussion of resource royalties. Ralph Allen called this our “colonial mentality.”
   

Comments

Only registered users can write comments.
Please login or register.

Powered by AkoComment 2.0!