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Alberta government throwing money away on oil projects

Woman under money umbrella
Reading Time: 4 minutes

One of the eternal questions of public policy is: should governments get into bed with private businesses?

Whether it’s called a public-private partnership, buying a controlling interest for taxpayers, investing in the technologies of tomorrow or just avoiding a business failure on our watch, the debate over whether the overall idea of government investing in the private sector is a good idea never seems to end.

The question is eternal not because we have no answer but because supporters of expansive government simply won’t accept the answer that reality has to offer. The history of government interventions in picking winners and losers in a market-based economy is absolutely abysmal.

In this context, the refusal to admit reality is a non-partisan thing since politicians of all stripes can’t resist the urge to meddle in markets. Whether it’s bailing out the fossil fuel sector (as in Alberta) or investing in the technologies of tomorrow (wind, solar, hydrogen) that are supposed to kill the fossil fuel sector in Canada, government investment in private sector activities always finds a welcome audience in government.

But coming only weeks after the death of Alberta’s big investment in order to try to save the Keystone XL pipeline, we now have a Conservative Alberta government deciding to go in with taxpayer money to bail out a bad oil sands investment deal.

How bad was it?

Even before the new salvage investment plan, the government chalked up a debt of $26 billion on the deal.

To make an interminably long story short, back in 2007, after the review of fossil fuel royalty structures in Alberta by the government of then-premier Ed Stelmach, it was decided that it might be a good idea to buy a stake in a proposed bitumen refinery to create a new guaranteed market for Alberta’s oil sands sector. The basic idea was to take bitumen, refine it into low-sulphur diesel fuel, pipeline diluent and other lower-weight hydrocarbons (such as propane and butane) and sell them to domestic industries. As a side-benefit, the theory was that the refinery would capture carbon dioxide emissions and reduce the climate change footprint of the bitumen combusted in the process.

Alberta sinks deeper into a sea of red ink by Steve Lafleur and Ben Eisen

Sounds great, like a win-win-win sort of thing. As Yogi Berra once said, “In theory, there is no difference between theory and practice. In practice, there is.” And putting the theory for the Sturgeon refinery into practice serves as a good example of the problems that happen when the government climbs into bed.

As Andrew Leach pointed out in a scathing report last year, the poor investment choices started very early in the process, when the government of the time decided that rather than take their profits from their investment (paid via reduced royalties on bitumen) back out in cash, they would instead take their profits out downstream, in products produced by the refinery years later.

And additional bad governmental decisions followed that one, such as a decision not simply to promise bitumen for delivery to the refinery but rather to guarantee a fixed rate of return to the not-yet operating refinery on its capital and operating costs to process the government’s bitumen.

Of course, the costs of building and operating the refinery ballooned over time, taking the government’s guaranteed return-on-investment promise with it, ultimately saddling Alberta with the $26-billion debt.

Keep an Eye on Alberta

There’s more to the story, of course, but flash forward to today and the government of Alberta is going to throw nearly another billion dollars on top of the $26 billion debt by purchasing a 50 per cent equity stake in the refinery from North West Refining, ostensibly keeping the scheme going for another 10 years and giving the government a greater decision-making role in the project.

And we know how well their previous decision-making turned out.

Coming on top of the Alberta government’s decision to invest $5 billion in the Trans Mountain pipeline expansion project (ka-ching!) and the $26 billion incurred in the past for the North West Refinery project, what’s another billion dollars, in the name of saving the taxpayer’s investment?

There’s an expression for that kind of thinking: that one should not throw good money after bad.

Kenneth P. Green is a senior fellow at the Frontier Centre for Public Policy.

Kenneth is a Troy Media Thought Leader. For interview requests, click here.

The Frontier Centre for Public Policy is an independent Canadian public policy think tank. It does not accept any government funding whatsoever. It relies on diversified funding to maintain its independence. 


The views, opinions and positions expressed by columnists and contributors are the authors’ alone. They do not inherently or expressly reflect the views, opinions and/or positions of our publication.

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