Stelmach throws the dice.

This is from the Financial Post. What nonsense: choosing politics over economics. He is choosing a more populist and progressive politics over the politics of cringing and begging, bowing and scraping, before Big Oil. The latter is the conventional wisdom and mislabelled economics by the Financial Post. No surprise there.
It sounds very much as if Stelmach is to pursue a quite moderate course and is actually accomodating the oil interests to a considerable degree. As a farmer he will put in just the right amount of fertilizer to grow both votes and acceptance by the oil patch.


Stelmach throws the dice
Oilpatch braced for Premier to favour voters
Claudia Cattaneo, Financial Post
Published: Tuesday, October 23, 2007
A sense of defeat is hanging over Canada's oil and gas industry as it braces for Alberta Premier Ed Stelmach to unveil his new royalty deal tomorrow.

The fear: The rookie Premier will choose politics over economics and whack the sector -- particularly the oilsands -- hard, throwing a wrench into its main economic engine.

That's what half his caucus, and his rural and northern Alberta constituents, apparently want him to do, motivated by envy of Calgary's brash oil elite and frustration they're not cashing in enough from US$90-a-barrel oil. Never mind that governments -- federal and provincial -- already collect half of oilsands projects' net revenue, which reflects commodity prices.


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Premier Ed Stelmach will outline his plan for the new royalty regime on Wednesday.
Photo: Mikael Kjellstrm / CanWest News

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Font:****Mr. Stelmach will outline the broad principles of his plan in a televised address, taped last week and scheduled to be broadcast late Wednesday. A date will be set Tuesday on when the government will follow up with all the hard details. Then Albertans will be immersed in an extensive communications campaign. The new framework will kick in right away.

It's expected Mr. Stelmach will not implement the full recommendations of a panel that urged a punitive, 20% increase in taxes and royalties from oil and gas companies. But the northern Alberta farmer is nevertheless hungry to make off with his pound of flesh because, as one pundit put it, that's what he needs to get re-elected.

Some of the speculation swirling around the oilpatch: That oilsands royalties will rise dramatically, from 1% to 5% before projects are paid out, and from 25% to 30% after investment is recovered. Change will be phased in. Existing oilsands output will be grandfathered. There will be no Oilsands Royalty Severance Tax, a controversial proposal.

The government won't be harsh on conventional production, recognizing the natural-gas industry is in a recession because of weak prices and high costs. Additional revenue may be funnelled into the Heritage Trust Fund, and potentially used to lower personal and corporate income taxes.

Mr. Stelmach said on Friday his new deal will provide "the dependability, the credibility, the stability for future investment ? these are major concerns so that we maintain the good reputation that Alberta has had over the last 30, 40 years."

It's a promise that he will not be able to back up. The Premier, who is expected to go to the polls by this spring, is taking two big gambles: That his new deal won't crash Alberta's economy, which is dominated by the oil-and-gas sector, and that he is truly doing what voters want.

The reality is that the provincial economy has been weakening throughout the year and the new terms may indeed promote the investment pullout the sector has warned of. Already, Alberta's reputation has been shaken and investors may not be in a rush to return. With capital-spending budgets for 2008 all but completed, the natural-gas side part of the business is looking at another year of weakness. As for oilsands projects, count on extensive reassessments. While Mr. Stelmach may be convinced it's fair to seek a middle ground between the panel's over-the-top recommendations and industry's views, the middle may land too far from what the private sector can afford to pay.

As for Mr. Stelmach's political career, it remains to be seen how it will play out. What's sure is that rather than building consensus, he amplified the historic rivalry between North and South. He provoked a vitriolic debate in which everyone was incited to air views about how much to tax the rich. His quest for fairness looks like a poor show of leadership.




© National Post 2007