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Debating Boyd on Resource Royalties

Saskatchewan’s Minister of Energy and Resources replied to my op-ed and letter on Dutch disease and resource royalties. On Friday, he was promoted to Minister of Everything.

Columnist Murray Mandryk wrote, “Given the amount of power Bill Boyd now has in his super-economy portfolio, he may be one fluffy Persian cat and remote desert island shy of becoming the political equivalent of a James Bond villain.” Does that make the target of his letters the political equivalent of James Bond?

Monday’s Regina Leader-Post featured the interprovincial man of mystery’s response:

Case for Royalty Hikes

Former energy and resources minister Bill Boyd’s regional rhetoric (“Backing a bad policy,” May 19) obscures the fact that the people of Saskatchewan, not eastern Canada, would gain the most from fairer resource royalties. The additional provincial revenue should be saved for future generations and invested in needed public services and infrastructure, which would create jobs in Saskatchewan.

The Canadian Association of Petroleum Producers reports that Saskatchewan received only $1.8 billion of royalties from $10.3 billion of oil sales in 2010. By comparison, Newfoundland and Labrador collected $2.2 billion of royalties from $8.3 billion of offshore oil sales.

Raising royalties would not “kill resource jobs.” Even if royalties doubled, the oil and gas industry would have made enough in Saskatchewan to immediately pay off its 2010 exploration, development and operational costs with a billion dollars left over.

Reducing these windfall profits would temper the foreign acquisitions of Canadian resource companies that drive up the loonie. A more competitive exchange rate would help Saskatchewan regain the 5,000 manufacturing jobs lost since the Sask. Party took office.

Boyd claims that ultra-low potash royalties helped it win last year’s provincial election. But the Sask. Party actually tried to avoid this issue by spewing out more press releases to distract from PotashCorp’s third-quarter profit report than on any other day of the election campaign.

If Boyd believes giving away the province’s non-renewable resources is good politics, he should welcome further discussion of royalties. I would be happy to debate him.

Erin Weir
Weir is a Saskatchewan expatriate and an economist with the United Steelworkers.

My interprovincial comparison focuses on oil because the Canadian Association of Petroleum Producers’ Statistical Handbook (Table 4.24a) does not clearly distinguish between Nova Scotia and Newfoundland for offshore natural gas, propane and butane.

Furthermore, Saskatchewan’s natural gas royalties are negligible ($30 million in 2010-11), so royalty revenue (Tables 4.4b and 4.12a) can reasonably be compared to oil production alone.

My subsequent observation about how much the industry made in Saskatchewan includes all fossil fuels. Table 4.20a indicates combined sales of $11.1 billion (i.e. the $10.3 billion of oil plus $0.6 billion of natural gas and $0.2 billion of propane).

Table 4.4b indicates combined exploration, development and operational expenditures of $6.5 billion. So, even if Saskatchewan’s royalties doubled from $1.8 billion to $3.6 billion, the industry could still have immediately paid off all of its investments with a billion dollars left over (i.e. $11.1 billion – $6.5 billion – $3.6 billion = $1.0 billion).

UPDATE (June 1): Quoted in Planet S and Prairie Dog magazines

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Comments

Comment from Anon
Time: May 30, 2012, 11:49 am

Erin: You clearly slept through Capitalism 101.

The state exists for the sole purpose of collecting taxes from the citizens and then providing that wealth to people who are already wealthy.

A case in point is Dr. Oetker GmbH which has been given $19 million to build a frozen-pizza plant to supply the North American market with the company’s Ristorante and Casa de Mama products.

Government in this instance is “buying” 120 jobs at a cost of $158,000 each. See the following URL:
http://opinion.financialpost.com/2012/05/29/terence-corcoran-make-global-pizzas-hold-the-subsidies/

Corcoran makes the point that Dr. Oetker GmbH also benefits from a pricing mechanism not available to other makers of pizza and their products are not subject to HST what gives them a further price advantage over the local fresh pizza shop. The upshot of this is that this state attempt to “create” jobs will likely cause the loss of an equal, or greater number, of local pizza shop jobs. And to make these state give aways possible we will need to cut EI and OAS payments to citizens who have no incomes.

Comment from John W. Warnock
Time: May 31, 2012, 8:44 am

One of the problems we have with advocating higher resource royalties for Saskatchewan is the fact that they were significantly cut by the Romanow and Calvert NDP governments. Indeed, Brad Wall often says (as he did during the potash debate) that the present royalties were set by the NDP governments and he saw no need to change them.

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