Canadian Manufacterers and Exporters on Royalty Review

Is it just me, or do I detect the mainstream media backpedaling a whole bunch from their original position that was so strongly against the petroleum industry?

Stakes in royalty review are high for all of Canada, not just Alberta

Jayson Myers and Brian McCready, The Edmonton Journal

Published: Monday, October 15

When Premier Ed Stelmach responds to the recommendations of the panel he established to review royalty rates for Alberta's oil industry, he will be making the most important decision of this decade for the Canadian economy.

Clearly, future investments in the Alberta energy sector are at stake if the premier agrees with the panel and hikes royalties by $1.9 billion.

That's money that is currently being spent on investments by the petroleum industry in Alberta. Over $240 billion has been invested by the oil industry over the past 10 years, creating economic and employment opportunities in the province unparalleled anywhere else in North America, let alone across the rest of Canada.

What's $2 billion a year to the oilpatch? Money to share? Let's get real. This is money that would come right off the bottom line, from the cash flow that drives investment activity. The review panel didn't pay much attention to the fact that the cost structure of Alberta's energy industry is one of the highest in the world, that rising costs are already squeezing profit margins, or that Alberta must offer internationally competitive rates of return if investments are to proceed.

Albertans don't think it is a smart thing to make personal investments that are going to lose them money at the end of the day.

Businesses are no different. Oil companies are already indicating that higher royalties would jeopardize future investment in an industry where exploration, drilling, extraction and upgrading projects are already being put on hold because of faltering prices, escalating costs and regulatory uncertainty. This is no threat. It's not a bluff. It's pure economics.

Two billion dollars off the bottom line could lead to an immediate drop of $10 billion in energy investment in Alberta. It would take more than a generation for that investment to return. That was the lesson of the national energy program.

But, the stakes for Alberta and for the Canadian economy as a whole are much higher than lost investment opportunities. Every dollar that is invested in Alberta's energy sector generates $10 in total economic activity. The benefits are enjoyed by people in Alberta and across Canada who are employed by manufacturers, service companies and construction firms that supply the petroleum industry directly or indirectly. All benefit from the strength of the Alberta economy, not to mention the public service, education and health-care jobs that depend on a continuous stream of revenue from energy investments and the tax revenues they currently create. Manufacturing in Alberta and Canada has been both a beneficiary and a driver of economic growth from this investment.

Lost investments in the oil industry jeopardize Alberta's capacity to create and sustain high-value businesses and high-paying jobs in the province. They jeopardize the Canadian economy by removing the one single source of market strength for manufacturers and exporters struggling to compete with the rapid appreciation of the Canadian dollar and increasing signs of weakness in the U.S. economy.

As Canadian manufacturers struggle with the loss of export business because of the rapid increase in the value of the Canadian dollar, they certainly do not need to see another economic driver removed from our economy.

The issue of oil sector royalty rates in Alberta is fundamental to the economic prospects for the province and for all Canadians.

All the more reason for Stelmach to make his decision on an informed basis.

We hope the premier will take the time to consult directly with the businesses that will be affected by his decision and to fully understand the economics of Alberta's oil industry and the implications of his decision for manufacturers and other businesses throughout Alberta and across Canada.

A lot of jobs depend on his decision.

It's important to take the time to get it right.

Jayson Myers is president of Canadian Manufacturers and Exporters.

Brian McCready is vice-president of CME Alberta division.