Slippery business: Calvert caves to the oil industry - Premier Lorne Calvert

Premier Calvert's complete capitulation to the oil and natural gas industry will do little to help his re-election. The decision to cut royalty and tax rates on new production, to cut the corporate capital surcharge, and to put in place a new regime of volume incentives attractive to the industry is a political and economic blunder. The whole package was industry-driven and negotiated in secret with the industry. And predictably the industry is delighted. The Leader-Post's editorialist called it "a business-friendly formula"--a massive understatement. Rather than a social democratic government using provincial powers to defend the public interest by maximizing resource rents for the province's precious non-renewable resources, the Calvert government has become a government of, for and by the oil industry. This won't get them any votes from the business lobby, while it will alienate the NDP's traditional support base.

This decision needs to be put in both an historical context and the current world context. The Devine government dismantled the Blakeney government's aggressive royalty and tax regime on oil and gas, thus providing the industry with a ten-year bonanza of hundreds of millions. The Romanow government failed to end this giveaway, tinkering with the tax and royalty regime to increase public revenues only marginally. And massaging over the years of Romanow rule further reduced the tax take. In 1981, Blakeney's NDP government took 65 percent of the value of oil and gas produced in the province. In 1989, the Devine Tory government took a mere 15 percent. In 1993, the Romanow NDP government took 20 percent. In 2001, the Calvert government, still operating under Romanow's rules, took about 13 percent. This can only fall further under the new regime just announced.

In terms of the world context, this is probably one of the most inopportune moments to announce further cuts to royalties and taxes. Oil and natural gas prices are on the rise--crude oil prices are up 50 percent since January 1st and natural gas prices are up one-third just since August--and are expected to continue to do so. As a result, sales of oil and gas rights in Saskatchewan hit a six-year peak this October and are expected to continue to be very positive with current price increases. So why is the Calvert government giving away this potential bonanza? All this is happening at our expense, as the gluttonous demand for energy in the American market turns Saskatchewan--and Alberta and BC--into oil and gas reservoirs willing to pump as much oil and gas out as fast as we can without regard for the environment or our future energy needs. So why is it necessary to come up with industry-friendly policies to accelerate a process of super-exploitation that is already out of control?

The line from the Calvert government and the industry is that this new regime will make Saskatchewan competitive with Alberta. One industry player was very blunt: "The biggest thing is that the new royalty and tax cuts will bring us more in line with Alberta." This is a fool's game, if the government has bought this line from the industry. There is simply no way that Saskatchewan can ever compete with Alberta on low oil and gas royalty rates and taxes. Nor is there a need to do so. As has been proven over many years, during the Douglas, Lloyd and Blakeney CCF/NDP regimes, as long as there are reasonable profits to be made--even if they aren't the super-profits to be made in Alberta--the oil and gas industry will remain active. Further, the industry will always whine and wail and threaten disaster if their demands aren't met. Consequently, though it's reasonable to listen to this nonsense, it is very unwise to allow the industry to set the government's policies at secret meetings.

Of course, if a government fails to listen to and thus angers the industry, the industry can punish the government through a "capital strike" by curtailing exploration and new investment. But there is no need to respond to capital strikes, or threats of capital strikes, by capitulating to the industry. Rather there are a variety of negative incentives that can be implemented, if the government has the political will and public support. The government could insist that a moving percentage of the volume and/or value of production must be ploughed back into activity in the province, or that amount will be taxed back and placed in a fund for new players. The province could set up a crown oil company (SaskOil could rise Lazarus-like from the grave to which Devine consigned it) to fill in gaps in desired levels of exploration and new production. The province's oil and gas leases could carry a rider stipulating minimum time limits and investment values in exploration and production activity, or the lease, and the f unds paid for the lease, would be forfeit. There are, in fact, many ways to skin a cat. But none of the most effective includes the cat's eager co-operation.

The oil industry (and the business lobby in general) will squeeze everything it can out of the Calvert government, just as it did out of the Romanow government and it will then pour money and support into the Saskatchewan Party to ensure the NDP's defeat. And by caving in to the industry, the Calvert government has disillusioned many members and supporters in its own political base.

John Conway is a University of Regina political sociologist and the author of The West: The History of a Region in Confederation.

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