Thursday, 26 July 2012

Remembering Sask Oil: It Can Be Done!

This past week it was revealed that one of China’s state-owned oil corporations has made a bid to take over Nexen, one of the remaining four large oil corporations operating in this country that are deemed to be Canadian owned and controlled. Nexen is based in Calgary, but it is known that around 65% of its stock ownership is foreign. In recent years there has been a steady disappearance of major Canadian corporations as they are being swallowed up by larger transnational corporations. This is very noticeable in Saskatchewan.

Erin Weir, an economist with the Steelworkers, has reminded us that the Saskatchewan Oil and Gas Corporation (Sask Oil), once a Crown corporation, was privatized beginning with Grant Devine’s Conservative government, became Wascana Energy, and then was taken over by Occidental Oil corporation, which then became Nexen. So much of Nexen’s land holdings and oil and gas wells in Saskatchewan will now end up as Chinese assets. How did this happen? Are Canadians incapable of running their own economy? Do all of the profits from the extraction of our non-renewable resources have to flow out of the country? Does anyone care any longer?

Moving to take control of our economy
The New Democratic Party under the leadership of Allan Blakeney was elected in 1971. The platform pledged that if elected they would create a Crown corporation in the oil and gas area. In 1973 the NDP government was faced with the major increase in world oil prices created by the OPEC producers' cartel. Oil prices rose dramatically in Canada. Rather than let the private oil companies capture this windfall gain, the Blakeney government, in tandem with Peter Loughheed’s Tory government in Alberta, introduced a new excess profits tax which would capture all the increase for the general public.

Of course, the oil corporations fought back, and the federal government took their side in the dispute. They went to court against the two provinces. In 1977 the court ruled the action taken by the NDP government, which took the form of a royalty surcharge, was ultra vires. Not backing down, the Blakeney government then introduced a new income tax on oil revenues and made it retroactive. Those were certainly different times. Governments were actually willing to stand up for their constituents.

In 1973 the NDP government created Sask Oil. There was no nationalization; it bought the assets of other oil corporations. By 1981 Sask Oil had assets of $191 million, gross revenues of $60 million, and paid $26 million in royalties to the government. The Blakeney government also raised the oil royalties significantly. The share of the economic rent (excess profits) going to the general population rose form 13% in 1972 to reach a high of 65% in 1982. The oil corporations did not pack up and leave as they were still making good profits.

Grant Devine's Tory government
But the trend of expanding democracy ended in 1982 then Grant Devine’s Conservative government took office. They were committed to turning over the Crown corporations in the resource sectors to private investors. In October 1985 they began selling off Sask Oil: 100 million shares were offered for one-third of the company, at a price of $9 per share. The majority of the stock in Sask Oil was sold by the end of 1986. At the end of this process, 75% of the new owners of Sask Oil lived outside Saskatchewan, a majority in the United States.

In 1988 the Devine government sold Sask Power Corporation’s natural gas holdings in Alberta to the now privatized Sask Oil for $325 million, and all but $124 million was financed by Sask Power. These reserves represented a 15 year supply for the Saskatchewan market.  At market prices at the time, these assets were worth $984 million. Privatization always represents the theft of public goods by private investors.
Regina's Co-op refinery can't be privatized

No change with the new NDP government

Many hoped that when the NDP under Roy Romanow was elected in 1991 this trend would be reversed. But this was not to be the case. The new NDP government simply completed the privatizations that had been begun by the Devine government. This included selling off the remaining shares of Sask Oil still owned by the government. They also removed the restrictions on foreign ownership imposed by the Devine government. Following the trend set by the Conservatives, the NDP governments of Roy Romanow and then Lorne Calvert further reduced the royalties on the extraction of our oil, down to only 15% of the economic rent collected.

The experience of the NDP government under the leadership of Allan Blakeney demonstrated that the people of Saskatchewan have the ability to run their own economy. A Heritage Fund was created, and part of the royalties collected from the extraction and export of our non-renewable resources was used to finance further local ownership and control. However, it seems that these days only Third World countries have the confidence to stand up to international capital as well as their local comprador bourgeois class and their right wing political allies.

Thursday, 5 July 2012

The Fraser Institute's Global Energy Survey

 Act Up in Saskatchewan

Near the end of June 2012 the Fraser Institute released their latest survey of the oil and gas industry. They reported that 623 managers and executives from 529 oil and gas companies had ranked Manitoba and Saskatchewan near the top of 147 political jurisdictions as good places to invest. In contrast, New Brunswick and Quebec were given fairly low ratings.

A great deal of the reporting was of no surprise and the results were not that controversial. For example, the political turmoil, international wars, and civil wars naturally led corporation representatives to warn about investing in much of Africa and the Middle East. There was also the issue of government corruption, well known in many of the countries surveyed.

The level of taxes and royalties
More important for the Canadian public was the judgement that corporation officials had on the fiscal terms of investing in various jurisdictions: what is the level of royalties and taxes imposed on the oil and gas industry?  Here Manitoba and Saskatchewan ranked very high, along with Oklahoma, Texas, North Dakota, Ohio and Louisiana, as political jurisdictions with the very lowest taxes on petroleum corporations. Those with the “worst” ratings included Venezuela, Libya, Russia, Iran, Algeria, Bolivia, Iraq, Uzbekistan, Kuwait and Ecuador. These countries have state-owned National Oil Corporations (NOCs) as well as high royalties and taxes.

Countries were given poor marks for keeping old Keynesian “trade barriers.” These included government currency controls and capital controls. One of the central objectives of the various “free trade” agreements was to allow corporations to move capital around and repatriate profits without any government interference.

Political jurisdictions were also judged on their general taxation regimes: did they have progressive income taxes, high corporate taxes, and capital taxes? Here, Manitoba was given very high marks while Venezuela was given the worst ranking. Oil corporations are in love with the Manitoba NDP government.
U.S. billionaires David and Charles Koch gave $500,000 to the Fraser Institute

Are there environmental regulations?
Another key issue surveyed concerned environmental regulations and their enforcement. Were there heavy fines on corporations for causing pollution? Was there a regime of stringent enforcement? Again, Manitoba was ranked high at number 5 and Saskatchewan at number 15. In western Canada our political regimes are very pro-business. Polluters do not pay.

In 2009 Alberta was given an astonishing low rating (92) because the provincial Conservative government was considering a new royalty regime. They quickly backed away from this, and in 2012 the oil executives in turn boosted their overall ranking to 21.

New Brunswick and Quebec received the lowest rankings in Canada because of “threats by anti-development activists.” In both provinces there is strong grass roots opposition to hydraulic fracking to extract natural gas from shale oil rock, fearing that this will pollute ground water sources. New York received the lowest rating of the U.S. states for the same reason.

Saskatchewan ranks high
The Regina Leader-Post noted that Manitoba was “on top” (5th overall) and that Saskatchewan had fallen to 13th place. At one time under Roy Romanow’s NDP government the province had ranked higher in the Fraser Institute survey.

But what should be of interest to the people of Saskatchewan is that the corporate representatives gave Saskatchewan the second highest rating (69%) on the question of whether the province had a fiscal regime that encouraged investment. Of 147 political jurisdictions, only Ireland (77%) was higher, and they have virtually no oil and gas industry. Thanks to the governments of Roy Romanow and Lorne Calvert, we are known for having the lowest royalties and taxes.

In an editorial on June 21, the Leader Post proclaimed that the people of Saskatchewan had learned their lesson. No longer would we have Crown corporations run by local people developing our uranium, oil and potash. This was best done by “private investors,” which of course means large transnational corporations. As they argued, “only ideological zealots of the far left” would threaten public ownership of resources, which would cut off foreign investment.

Crown Corporation privatized by Devine and Romanow governments

A new investment climate
However, those countries which the Fraser Institute identifies as the worst places to invest also seem to have most of the undeveloped oil and gas reserves. Their newly elected governments have been raising royalties and taxes and expanding their control over their natural resources through state-owned oil and gas corporations.

But what happens if the large private transnational oil and gas corporations decide to pull out in protest? As we have seen in Venezuela, Bolivia and Ecuador, other oil corporations quickly rush to take their place. Many of these are also state-owned corporations. Most Canadians seem to be aware of the fact that the Chinese National Oil Companies, which remain state-owned, are investing everywhere they can. Even in the Alberta tar sands. Today, there are many alternatives to Exxon-Mobil and their like.

On top of this, those nasty governments in Venezuela, Bolivia and Ecuador are using their additional revenues from the oil and gas industry to support programs aimed at reducing  poverty. What could be worse!

Currently, the industry and their supporters have directed their political and economic anger at the government of Argentina. This democratic government, with strong popular support, re-nationalized their largest oil company, YPF, once a state-owned corporation that had been privatized by a previous government. That was a very bad precedent. It might even give Canadians some ideas.