November 04, 2014
Acheson Business Association Speech
Thank you all for allowing me the privilege of speaking to you.
It’s hard to believe there was a time when Alberta politics was considered boring...
Those days, are over.
That’s a good thing I think. You see, Albertans are among the most dynamic, adaptive and forward-looking people in the world.
After almost 43 years, I’d say it’s about time our politics caught up to who we are.
I see in this room what I’ve been seeing right across this province: A generation of Albertans who are looking to the future. It’s an Alberta that is breaking the mould.
An Alberta that’s casting off the shackles and preconceptions of what we can and should achieve.
A new generation of leaders ask the bold questions because they need to be asked. We demand the provocative answers because they need to be heard.
We’re a province that doesn’t want to look backwards on what we’ve achieved. We want look ahead to our next great accomplishment.
We’re a remarkable province with remarkable people. It is our purpose and our promise. To be remarkable.
This is the Alberta I want to lead.
But we are also a province of enduring political dynasties and Wildrose is still a relatively new party. Earning the trust and confidence to govern is no small task.
Albertans make you earn it. And that’s what we in Wildrose plan to do.
Over 20 years ago James Carville, a campaign strategist for Democratic presidential hopeful Bill Clinton, coined the famous line, “It’s the economy, stupid”.
This helped Clinton win two terms as U.S. President during which he led a strong turn-around of the American economy.
Unemployment fell steadily. Poverty shrunk. GDP climbed. Inflation stabilized and wages grew.
Business leaders know how it works:
- Capital flows.
- Investments are made.
- And jobs, wealth and opportunity are created.
- Lo-and-behold lots of people’s lives improve – a lot.
But all of that only happens when investors have confidence that the political and fiscal regime under which they invest and operate is stable and predictable.
We used to call this the “Alberta Advantage”. You don’t hear much of that these days.
The Alberta Advantage was coined during the Ralph Klein era. At a time when he and his government cut spending, cut corporate taxes and ended up turning a huge provincial debt into a huge surplus. At one point late in the last decade the Alberta government had $14 billion in the Heritage Fund and a staggering $17 billion in the Sustainability Fund. Global capital markets notice these sorts of things!
During this period the Alberta Advantage created some interesting economic opportunities and not the sort normally associated with what is widely regarded as our resource-based economy.
Giants of Canadian business like Imperial Oil and Canadian Pacific moved their corporate head offices from central Canada to Alberta.
Capital flowed in from all over the world.
And we all got to enjoy the benefits of that.
That was the past, and most you lived it. You don’t need to know about the past -- you want to hear about today and tomorrow.
What will Alberta’s economic future look like?
What will be the foundations for the continued economic prosperity that we have enjoyed?
What does this look like? How will we get there?
Discussions about our economic future must begin with where we are today.
That involves talking a lot about our energy industry.
Energy drives most things around here and even the things that are not about energy have been helped by what energy had brought.
There is no doubt that Alberta’s economic success is to a great degree underpinned by vast quantities of oil and gas.
Now, lots of places have oil and gas. A few places with hydrocarbon resources that rival Alberta include Saudi Arabia, Venezuela, Iran, Nigeria, and Mexico.
All of these places have numerous advantages over Alberta. For one, oil and gas developers don’t have to work in the freezing winter or spring thaw.
All of these jurisdictions are on tidewater, meaning they have low cost access to all global markets by tanker.
They all have much lower labour costs which further lowers exploration and development expenses.
If you go back in history, in fact these countries did attract much more capital than Alberta in the early days. Almost all of these places were producing lots of oil for global markets years before the Leduc discovery of 1947.
But something happened to many of those places along the way. Because of resource nationalization, excessive taxation, political uncertainty and civil unrest, global investment capital began to move to Alberta.
Why? It wasn’t the geology. It wasn’t the geography. It wasn’t low exploration and development costs. And it certainly wasn’t the weather.
It was a stable political regime, economic certainty, and investor confidence.
Capital is often described as liquid. You could describe capital as being like water: driven by the powerful force of gravity - it flows freely and takes the path of least resistance from where it is, to where it is going.
We’ve learned a lot about this in Alberta in recent years. The hard way.
Based on our history, we’ve always believed that if we have the resources, the capital will flow our way. But you know this isn’t the case.
We’ve fixed the royalty framework, but trust was broken -- I’ll get back to that shortly.
New technology has unlocked vast supplies of natural gas and crude oil in shale rocks and tight formations. This has caused an energy renaissance in the United States and demonstrated to all of us the geographical disadvantage Alberta faces by being landlocked.
I don’t need to say much more than that about the need for export pipelines. This issue is in the news every day. Fixing this is so very important. I’ll talk a bit more about that later.
To demonstrate the fierce competition Alberta now faces – competition that we’ve never faced before -- look no further than EnCana. Of the five main producing areas EnCana will be pursuing in the next few years, three are in the United States.
Because of geography and high costs, Alberta is no longer the destination for capital that it once was.
Thanks to geology we can increase production for many years. But geography and high costs detract from the opportunities. The simple point is that we take our current and historical financial riches for granted and we do so at our peril.
On the energy front whatever Alberta Advantage is left is at risk of fading fast.
In some ways we have been successful not because of our resource endowment or enlightened fiscal management, but because of the failure of other hydrocarbon-bearing jurisdictions to provide a stable and predictable fiscal and regulatory regime.
Yes, Alberta has been for the most part a safe place to invest. We would not have overcome our operating disadvantages of geography, high costs and seasonality if we had not been an attractive destination for investment capital.
Remaining a safe place to invest is critical.
Let me tell you about a few other aspects of why I believe Alberta is going the wrong direction. And then I’ll tell you what a Wildrose government would do differently.
Nothing is more important to investors than the sanctity of a contract. You read the rules, comply with the regulations, sign the papers, plunk down your money, then get on with the challenge of generating a satisfactory rate of return.
Business intrinsically has many risks. But an attractive destination for capital is one where investors only have to deal with business risks, not political risks.
Unfortunately, Alberta is increasingly introducing political risks.
Nothing is more damaging to our reputation among global investors than the recent cancellation of oilsands leases in northeast Alberta.
First through the Lower Athabasca Regional Plan, and more recently by the prohibition of development on several oilsands leases adjacent to the community of Fort McMurray.
These issues don’t make the news very often. But behind the scenes the energy companies affected are quietly negotiating with the government for compensation.
To be truly fair, when Alberta breaks what the buyer regards as a legally binding contract, the Crown should be providing compensation that includes some of the opportunity cost.
This could cost an awful lot of money.
As an aside - exactly how much money the Alberta government has to spend on anything has been a matter of significant debate. If oil stays at $80 or less there won’t be any debate. We’ll be in trouble.
How much money this compensation will cost is unknown - none of these compensation cases has yet been closed. But a situation where the government decides that it will only refund a fraction of the total investment will not be a positive signal to world capital markets.
That’s political risk.
Another risk that people are sort of aware of but isn’t well understood is the growing regulatory burden faced by all business, not just resource development. There’s permitting, regulatory approvals, land access, environmental reviews, community impact assessments, local consultation.
No single rule, regulation or process exists that isn’t well intentioned.
But “the road to hell is paved with good intentions”. The cumulative impact of all that paperwork and red tape is driving up cost and delaying developments. Red tape is another form of political risk.
World capital markets notice Alberta’s political risk.
Now that I have you as concerned as I am, I am sure you are wondering what would Wildrose do differently?
The FIRST thing a Wildrose government would do is honour our contracts.
A subsurface mineral license is a property right. We cannot claim that regions of Alberta are open for exploration and development, sell the rights, and then change our minds a few years later for other reasons.
I understand there are increasing development and land use conflicts as Alberta’s population and environmental pressures grow.
I understand that many people are pleased when resource development is delayed or curtailed.
But if we keep collecting cash for mineral rights then changing our mind and not permitting development – especially in cases when the buyer has invested additional capital – there are only two possible outcomes, both unpleasant:
One is that the developer only receives a fraction of its investment, forcing a write-down and loss of capital. The world will notice. Capital will stay away – jobs will be lost. Our quality of life will go down.
The other outcome is that the government pays compensation far in excess of funds received. While this may salvage our international reputation with investors, it will infuriate many voters and result in the government spending more money it doesn’t have.
Respecting contracts makes good economic and electoral sense.
The SECOND issue a Wildrose government would tackle is streamlining the regulatory process for business.
I know most think this is underway because the government merged parts of the Energy Resources Conservation Board and Alberta Sustainable Resource Development into the Alberta Energy Regulator, creating a so-called “one window” approach to permitting.
Well like many things governments do, the stated purpose and the actual progress are two different things. I hope this works. I have to admit that I am more than a little concerned about how long it is taking to get up to full speed.
And it’s not just oil and gas. Red tape hurts all sorts of Alberta businesses. Wildrose will work diligently to streamline regulatory processes without compromising their intent: protection of consumers, workers, the land, air and water.
As for the economy, our basic position at Wildrose is that our ability to do any of the things we aspire to do will be affected by provincial government spending and the rise of the debt. That’s a key THIRD issue.
The last budget showed that by Budget 2016 our debt will be $21 billion. Call it infrastructure debt. Call it a mortgage. Call it an investment. It doesn’t matter.
At a paltry 4 per cent per year, the interest payments alone will be approaching one billion dollars per year. That doesn’t include principal repayment.
Investors want a stable and predictable fiscal regime. Everyday Albertans want the same thing.
Under our current government either taxes are going up or the debt is going up, or both.
This is not the direction of the Alberta Advantage that we have previously enjoyed.
There are many other initiatives we at the Wildrose would pursue given the opportunity. One of them is a natural gas strategy-- the local exploitation of this massive resource endowment.
We like to see natural gas used as fuel for power generation and transportation fuel. We like to see micro-power electricity generation using natural gas for large buildings and plants to generate electricity and capture the waste heat. This will lower electricity transmission costs for everyone by moving generation closer to consumption.
This will also go a long way to offsetting carbon emissions from the oilsands and establishing Alberta as a world leader in the clean and sustainable production and consumption of hydrocarbon fuel.
And we have got to get better at reducing emissions from oilsands.
We cannot have this vast and important global resource remain a lightning rod for those opposed to hydrocarbon development all over the world.
Let me talk a little bit about market access and getting our energy to market.
Recently I have given speeches in BC and Saskatchewan about Canada’s need for a national market-access strategy that creates dedicated commercial corridors for transportation and industrial activity.
Imagine this: A nationally negotiated transportation, commercial and utility right of way going through northwest Canada from Northern Ontario and Manitoba – through Saskatchewan and Alberta – all the way to the West Coast.
These would be major pre-planned routes in which commercial ventures would not only be permitted but actively encouraged.
Rather than have industry come up with a multitude of ideas, proposals and routes that would ultimately wind up in a series of endless hearings, politicians would take the lead and settle as many issues as possible in advance.
But we don’t need six or eight or twenty routes. We probably only need one, providing that commercial corridor is wide enough to accommodate what we know will happen in the next ten years and hopefully what may take place in the following twenty or fifty years.
Instead of being 100 metres wide like a typical pipeline right-of-way – or even less, like a railroad hugging a cliff in a canyon – this corridor could be up to a kilometre wide. The distance from the U.S. border to the North West Territories is 1,224 kilometres. I'm willing to wager that Western Canadian provinces would be glad to use 1/1200th of their real estate for this kind of certainty.
Imagine the potential. A swath of land dedicated to the movement of our most precious and valuable natural resources.
But this would be more than a solution to Alberta’s pipeline woes. Some Manitoba-based or Northern Ontario-based resource of the future shouldn’t be held hostage and prevented from realizing its potential because of political intransigence somewhere else.
This is a national project. It requires national leadership. Now some may accuse me of being naive. As I said before, I am an optimist and occasionally that does lead to some idealistic endeavours.
Certainly – given the intersecting interests of powerful activists across the spectrum – a single right-of-way stretching across four provinces could fall into that category of being excessively idealistic.
The federal government would almost certainly have to do the heavy lifting because the bulk of the negotiations would have to involve agreement and buy in from our First Nations as a starting point.
It would deal with river crossings and protecting environmentally sensitive habitat. It would not be for the faint of heart or weak in spirit. But where would we be without ideas?
These kinds of large-scale, nation-building enterprises are exactly why the provinces of British North America agreed to confederation.
The government of Canada was originally created to make all provinces richer through the benefits of a transcontinental railway.
In the 1950s, the Government of Canada embarked on a similar project when it developed the St. Lawrence Seaway with Ontario, Quebec and the United States.
Now, Sir John A. Macdonald never had to contend with the 24-hour news cycle and MacKenzie-King surely didn’t have misinformed Hollywood celebrities campaigning against him on Twitter – but now is the time to act. The time to lead.
A trans-national commercial corridor through the north of western Canada will be for this century what the St. Lawrence Seaway Project was for the previous one and maybe even what the Canadian Pacific Railway was for the one before that:
A unifying venture that will define a generation and lay out the foundation of our economic prosperity for decades, even centuries to come.
In today’s world – where the process for creating jobs, wealth and tax revenue is becoming burdensome to the point of unworkable – where NIMBYism infects every debate - it is time for those of us elected to lead to actually lead. From the front, with courage and resolve.
Macdonald did it. King did it. Why can’t we do it? Why can’t we do something great that the next generation will thank us for?
In closing, as you can probably tell, the issues I’ve raised and discussed today are near and dear to my heart.
They are the essence of why I get up every morning and travel this province from border to border.
After over 43 years, I think Alberta needs a new government, new leadership. If you haven’t come around to that conclusion yet, I hope what I’ve shared today has got you started.
Albertans have never thought that standing still is good enough, or that our past is somehow currency for the future.
The challenges of today and the opportunities of tomorrow don’t care much about what we accomplished yesterday.
We must face those challenges and seize those opportunities. And I believe we shall.
A new generation of leadership can lead the way.