Petronas Drops Hammer on Clark's LNG Hopes

BC Should Not Be Bullied or Suckered by Petronas Over LNG Taxes

by Damien Gillis - The Common Sense Canadian

News this morning that Malaysian energy giant Petronas is considering pulling out of the nascent BC LNG industry over the taxes the province wishes to collect from its gas resources called to mind a legendary story about Tommy Douglas when he was premier of Saskatchewan.

I cannot attest to whether the tale is true or apocryphal, but it’s certainly instructive to British Columbians in this particular situation. It goes like this:

After meeting with oil tycoons considering doing business in the province and trying to secure a royalty and investment climate beneficial to their interests, Premier Douglas emerged from the closed-door gathering, whereupon several reporters asked him how it went.

“Well, I’ve got some bad news and some good news,” Douglas told the press.

“The bad news is the oil companies are leaving…The good news is they’re leaving the oil behind.”

Douglas was right. The resource wasn’t going anywhere – and no sense developing it unless its owners (the citizens of the province – how often forget this) stand to get their fair share.

If market prices or the costs of extraction don’t allow for that, then we can always leave it in the ground until such time as they do.

Flash forward to present-day BC and a familiar pattern is repeating itself. The oil and gas industry wants our resources, but they don’t want to pay for them. Whether BC Premier Christy Clark has the fortitude and vision of Douglas remains to be seen.

Petronas threatens to take its ball and go home

The lastest round of fretting over the future of BC’s yet-to-be-built LNG industry derives from some tough posturing the Financial Post by Petronas CEO Shamsul Abbas, who is threatening to cancel the company’s planned development of a gas pipeline and LNG plant in Prince Rupert.

Among Abbas’ chief complaints are delays in regulatory approvals, the province’s intended export tax for LNG – the basis for its wild-eyed election promise of a $100 Billion “Prosperity Fund” to pay down our sizeable provincial debt - and a “lack of appropriate incentives.”

Said Abbas to the Post, in advance of an expected visit with Premier Clark next week:

“Rather than ensuring the development of the LNG industry through appropriate incentives and assurance of legal and fiscal stability, the Canadian landscape of LNG development is now one of uncertainty, delay and short vision.”

What does he have to complain about?

Now, let us decode Mr. Abbas’ comments. What, exactly, is he seeking for his company, in order to do business in BC?

First of all, Mr. Abbas doesn’t want to be regulated. “Don’t kill the goose before it lays the golden egg,” he told a global LNG conference hosted in Vancouver by the Liberal government earlier this year.



Petronas’ original project map – sans Skeena

And I don’t mean that he doesn’t want too much regulation. He wants none. In the early stages of the company’s application for a $11 Billion LNG plant – situated in the middle of critical salmon habitat in the Skeena River Estuary – the Canadian Environmental Assessment Agency suggested it may not require any environmental assessment at all.

This for a project that could “collapse” wild salmon stocks in BC’s second most important salmon river, according to SFU Assistant Professor Jonathan Moore.

When its bid to slide under the environmental assessment radar failed, the company appears to have come up with another ingenious method for avoiding regulation: It erased the Skeena River and estuary from its project maps. Of course, this was later put down to a simple “data error” – but the furor over the incident led to an extended public comment window for the project – which, naturally, Mr. Abbas must have though deeply unfair. Is this any way to treat a potential investor of billions into BC’s economy?!

But are they really “investing” – or, as we’ve documented in these pages, have we simply given them a massive, sweetheart deal on our gas, via a 25-year export licence and the cheapest royalties in the world? More on that later.
Other regulatory goodies

An easy ride from environmental assessors is far from the only regulatory perk this industry has tried to secure.

We learned recently from the Canadian Press that the controversial, aborted attempt to cancel all future environmental assessments for sweet gas plants in BC was driven by the oil and gas lobby, CAPP.

In buying up Talisman Energy earlier this year, Pertronas obtained a licence to 7.3 billion litres of fresh water a year from our public Williston Reservoir for its fracking operations in northeast BC. This licence was quietly awarded by the ministry in 2011 without public consultation – and amounts to a massive giveaway of public water resources, pillaged from our public dam, before it can be converted into electricity.

List of demands

More than cutting all that pesky red tape, what Petronas wants is government handouts – and not to pay any royalties or export taxes.

The company has been actively seeking tax concessions from the Harper government, including boosting its capital cost allowance from 8% to 30% - an estimated savings of $75-100 million for every billion dollars spent, says UBC Sauder School of Business Professor Kin Lo.

This comes on top of millions in royalty credits and other incentives the industry has already secured from BC.

On that note, British Columbians are often reminded just how much this industry benefits our public coffers. Well, that, it turns out, is a gross distortion, as Norm Farrell recently laid bare in these pages – a must-read.

Thanks to credits in the region of half a billion dollars a year against royalties owed by the gas industry to the public, we now obtain just 0.1% of our annual provincial budget from oil and gas revenues.

Sure, there was a time when this industry made a valuable contribution to our tax base, but those days are long gone – and Mr. Abbas would like to keep it that way.

What jobs?

As to the jobs the industry bandies about, again, they are far overblown compared to the reality, which has the oil and gas sector ranking at the bottom of the barrel in job creation for the province.

And don’t forget, our Minister of Natural Gas just signed an agreement with China to supply workers to build the BC LNG industry – supported by changes to our federal labour laws that allow any company to pay a foreign temporary worker 15% less than a Canadian doing the same job.
The incredible, disappearing export tax

Now, to the much-vaunted export tax that we were promised during the last election would erase our provincial debt, pay for hospitals, roads, and all manner of wonderful things.

Well, as my colleague Rafe Mair recently noted, what was once our premier’s “$100 Billion Prosperity Fund” has now shrunk to mere, undefined “billions”.

But it was never going to be anything near $100 Billion in the first place. After much negotiating in secrecy with the likes of Abbas, and multiple delays, we finally caught a glimpse of the province’s proposed export tax in this year’s budget. And what did we find? I’ll let Kevin Logan’s February column on the subject do the talking:

“Effectively, BC will not realize any serious revenue from LNG until – wait for it – not this mandate, nor the next administration, but beyond the election after that!”

“The two tier tax regime floated by the finance minister does not start until ships are leaving our coast full of LNG, and for 3-5 years after that it is “tier one” rates of 1.5%. However, the kicker is that every nickle paid to BC under the pathetic 1.5% tier one rate is given back to the companies once tier two is reached.
“Tier two taxation is only achieved once the LNG companies we let set up shop have recovered 100% of their costs…And once they have recovered costs, the tier two taxation rate of “up to” 7% kicks in – at the same time all the tax paid under tier one is given back to the companies through rebates.”

Now bear in mind that all this – this amazingly sweetheart deal the industry already has had lain at its feet – is still not good enough for Mr. Abbas.

That’s because he doesn’t want to pay lower royalties and taxes. No, to Petronas the only appropriate rate of taxation is, essentially, ZERO. And if they doesn’t get it, they’ll take their ball and go home.

Well, I can tell you what Tommy Douglas would say to that.

Damien Gillis is a Vancouver-based documentary filmmaker with a focus on environmental and social justice issues - especially relating to water, energy, and saving Canada's wild salmon - working with many environmental organizations in BC and around the world. He is the co-founder, along with Rafe Mair, of The Common Sense Canadian, and a board member of both the BC Environmental Network and the Haig-Brown Institute.

More articles by Damien Gillis