Northwest Upgrader- more surprises ahead for Alberta taxpayers?
Soon after the Legislative Assembly was recessed on 6 December, Alberta’ Executive Council (provincial cabinet) passed Order in Council 219/2023 to authorize the Alberta Petroleum Marketing Commission (APMC) to borrow money to finance the operations of the North West Redwater (Sturgeon) refinery.
The maximum amount to be borrowed “shall not exceed $2.9-billion”- hardly a relief for Alberta taxpayers. The O.C. also authorizes the President of Treasury Board and Minister of Finance to “make advances to or purchase securities of the Alberta Petroleum Marketing Commission” not to exceed the same $2.9-billion limit.
It will be the Crown in Right of Alberta who will be raising this money by issuing securities and the Crown will become the debtor. Under section 7, the terms and conditions of the securities and advances are determined by the Finance minister and the amounts borrowed could be in other currencies.
The O.C. alarmingly also gives APMC considerable authority to:
(a) directly or indirectly purchase shares;
(b) make a loan of money;
(c) in a transaction involving the payment of any money, enter into a joint venture or partnership;
(d) guarantee the obligations of any person; and
(e) to incorporate or acquire one or more subsidiary corporations for the financing and operations of the North West Redwater (Sturgeon) refinery.
Why is this all this borrowing necessary?
In 2019-20 provincial financial accounts, a provision against the government’s economic interest in the refinery was taken of approximately $2-billion. In 2020-21 another $500-million provision was taken on the Sturgeon Refinery’s operations. On 5 July 2021, former Energy minister Sonya Savage announced “a better deal on the Sturgeon Refinery… reducing risk and saving an estimated $2 billion.”
Despite this proclamation, the red ink seems to still be flowing. In Nate Horner’s first fiscal update as Finance minister it was revealed that a “net loss of $594 million reported by Alberta Petroleum Marketing Corporation (APMC) …, is the responsibility of APMC and GRF cash is not required.”
NWRP operates a 50,000 bbl/d bitumen upgrader and refinery that processes approximately 12,500 bbl/d (25% toll payer) of bitumen feedstock for the Company and 37,500 bbl/d (75% toll payer) of bitumen feedstock for the Alberta Petroleum Marketing Commission (“APMC”), an agent of the Government of Alberta. The Company is unconditionally obligated to pay its 25% pro rata share of the debt component of the monthly fee-for-service toll over the 40-year tolling period until 2058. .. As at June 30, 2023, the Company’s cumulative unrecognized share of the equity loss and partnership distributions from NWRP was $568 million (December 31, 2022 – $551 million). For the three months ended June 30, 2023, the Company’s unrecognized share of the equity loss was $1 million (six months ended June 30, 2023 – unrecognized equity loss of $17 million; three months ended June 30, 2022 – unrecognized equity loss of $15 million; six months ended June 30, 2022 – unrecognized equity loss of $25 million) -emphasis added).
Source: nonfiction studios
Under section 8 of the Petroleum Marketing Act, APMC is “for all purposes an agent of the Crown in right of Alberta and its powers may be exercised only as an agent of the Crown in right of Alberta” (emphasis added). The government now finds itself in a similar bind as with the $1.3-billion arbitration matter between AIMCo and various public sector pension plans.
The claim that somehow APMC is responsible and GRF cash is not required is now revealed as a fiction.
For it is the Crown which is borrowing the money for its agent the APMC. Furthermore, private lenders clearly won’t lend money directly to the APMC because of the boondoggle of contractual relations it has entered into with the owners of the North West Redwater (Sturgeon) refinery, including Canadian Natural Resource Limited as part equity holder.
Implications
First, this borrowing will be considered as part of the government’s debt by rating agencies. In the space of a month or two, the government faces a call of up to $4,2 billion from the King’s Bench pension decision and the costly Sturgeon Refinery boondoggle.
Second, despite the relatively rosy fiscal picture painted by Minister Horner and his colleagues, there is very selective disclosure about the province’s fiscal highlights. Indeed, we still do not know how much the reprivatization of laboratory services will cost Alberta taxpayers.
Third, the loss sharing with the refinery owners seems to be heavily slanted in favour of the private sector parties. This policy blunder has and will likely cost taxpayers billions with a contract locked in to the advantage of other parties like CNRL until 2058. An analogous example is the Churchill Falls-Hydro-Quebec 65-year fixed price contract where Newfoundland and Labrador earned approximately $2-billion versus $28-billion for Hydro Quebec.
Fourth, APMC seems to have an enormous degree of flexibility to lend the Crown’s money, to establish subsidiaries without any limitations. To whom will money will be loaned Will the loan be with or without security and different types of currency? Can APMC establish subsidiaries is tax havens? Are there any limitations on to whom guarantees can be made? Can they be guarantees to individuals?
These are questions that should be addressed by the Finance minister when he returns from the holidays.
Fifth, notwithstanding assurances from the previous UCP energy minister, this deal is an appalling affront to Alberta taxpayers.
Finally, it is little wonder that no press releases accompanied the O.C. The O.C. reveals that the province’s claim of no exposure to GRF cash it is First Quarter Update is a fig leaf masking the Crown’s ultimate exposure to this financial disaster.
Given the above, the entire policy development process, contractual negotiations pertaining to the Sturgeon Refinery should be the subject of a judicial inquiry.
