Many long years ago, when I was in first year Law, we learned a case called the Carbolic Smoke Ball case. This involved a patent medicine and great claims were made for its virtues. There was a lawsuit because a user of this patent medicine was not satisfied with the result, which he said was nil. This was apropos in those days, since in B.C. we were constantly exhorted to buy Dodds Kidney Pills, which had nothing to do with kidneys, and Carter’s Little Liver Pills, which had dick-all to do with livers.

The court drew the distinction between statements by advertisers to be taken seriously and what it called “mere puffery”.

I got to thinking about this in political terms. Obviously politicians, the more so the closer they get to an election, indulge in a lot of “mere puffery”. They also make statements which are intended to be taken seriously. The trick is, which is which?

The fib that won the election

Clearly the statements made by Premier Clark prior to the last election about the so-called “Prosperity Fund” and LNG plants galore were well beyond “mere puffery”. She got very specific and not only were we to have all our debts paid off but the fund itself would hold $100 billion, later reduced to simply billions of dollars and now, I understand, $1 billion.

Needless to say, all of these figures were preposterous, no matter how successful the premier’s LNG undertakings were.

We were also to have an LNG plant in place by 2015.

I think one can argue that the election was won on these promises, along with the vague promise that business would be good under the Liberals and bad under the NDP. The premier engaged Brad Bennett – son of and grandson of – to help her spread this message and she snatched victory from the jaws of defeat by so doing.

The LNG mystery

There is nothing wrong, and a lot right, with a government having a policy. This policy, however, must be clearly spelled out so that the public can follow its progress. I must say that the policy of LNG plants is something I have long had great doubts about, however I am not the government and I am not making the policy.

Apart from the fact that any LNG policy is opposed by a great many, including myself, on environmental grounds, it’s main sin is that nobody knows what it is. This uncertainty has been compounded not only by the mythical Prosperity Fund but the mysterious process, if there is one, by which LNG projects will come to British Columbia.

Petronas and that pesky “red tape”

The latest debacle with Petronas, the Malaysian energy giant, simply proves the point.

Petronas seems to make it clear that it cannot live with the terms proposed by the BC government, especially its proposed 7% tax. This objection was made very publicly by the CEO, Mr. Abbas, leaving in the minds of most of us no doubt but that the company was on the brink of pulling out. Moreover, Mr. Abbas made it abundantly clear that Petronas was not interested in any environmental regulations whatsoever. (Industry usually refers to such regulations as “red tape”.)

This event was shunted aside by the premier and her minister, saying that Petronas was merely negotiating in public, that all was well, and that in no time the government and Petronas would be holding a celebration.

[signoff3]

In reading the statement by Petronas’ CEO, I was struck by the objection to  environmental regulations and my thoughts raced to the Mount Polley Mine disaster.

To large companies,”red tape” means regulations that make them behave themselves. This raises the question as to whether or not the province was being called upon to allow Petronas to do as it pleased, meaning that we could look forward to the kind of disaster we saw with Mount  Polley.

Lessons from Mount Polley

In that case, we now know that there were known problems with the burst dam for years before the tragedy and that nothing was done. Nothing was done by the company but more importantly by the British Columbia Ministry of Mines. That they had power to do something is clear – that they failed to do so is likewise clear. Even, it seems, regulations in place don’t prevent governments on the take from industry from ignoring them.

Are we being played?

What this all raises is the question, “just what the hell is going on?” Surely the public is entitled to know what the terms are for LNG plants coming to British Columbia – not just the financial terms but the environmental terms as well. Are we expected to forego environmental protections? What are the taxes that Petronas and others will be expected to pay? Is the 7% tax a fixed tax? What value does it offer if they can deduct their tens of billions of dollars in plant and pipeline costs before paying out a penny to taxpayers? Is such a tax in accordance with industry norms? If not, what is? Are we in fact being whipsawed by Petronas and others as they play off Australia, the United States and British Columbia against one another?

The “F” word

I hate to raise this but there is an elephant in the room that no one seems to want to acknowledge. It is called fracking – the controversial method of gas extraction that would supply the feedstock for BC LNG.

We have embarked upon fracking in British Columbia as an accepted policy with a minimal amount of investigation. Industry and the government choose to ignore that it is an extremely dangerous practice under the best of circumstances and that the damage done and the costs incurred vastly outweigh any of the benefits to be derived. As we read about government negotiations, the word fracking never seems to appear.

Such as we know them, the facts of the Christy Clark LNG policy would indicate that the government are, at best, bumblers in a game where the other side is used to winning and has all latest tricks up its sleeve.

In other words, in the government of British Columbia, the premier and her ministers are in this huge and complicated business way over their heads.

It’s possible that the majority of British Columbians would agree with developing our natural gas resources – even for export – if our own energy security was guaranteed, the economic benefits accrued to British Columbians and we did it all in such a way that we are able to maintain our international reputation as an environmental leader and awe-inspiring tourist destination.

However, contrary to the BC Liberal election campaign rhetoric, the government’s LNG development model offers none of this and with the Malaysian state- owned behemoth Petronas as their lead proponent, it’s guaranteed we will reach none of these objectives.

‘World-Class’ rhetoric ushers in Third World-style deals

Christy Clark has made of lot of claims to maintain her hold on BCs most powerful office, chief among them has been the bold but baseless proclamation that her government will erase BC’s fast burgeoning debt and fill a 100 Billion-dollar “Prosperity Fund” by developing our resources in nothing less than “world-class” fashion.

However, while such soundbites may win election campaigns in the developed world, the facts prove that the Clark government’s public narrative is thoroughly divorced from the Third World-style backroom reality that has been driving the BC Liberal LNG negotiation style.

But we have been calling them out for years

Here at The Common Sense Canadian, I have been drilling down to deconstruct the details of the Clark/Coleman public narrative as they have unfolded for years now.

We were the first to report that Coleman was negotiating these deals under non-disclosure agreements and we broke down each of the most outlandish “BC Liberal LNG Myths” here and here.

We were also the first to dissect the Harper-approved, Goliath 25-year, $400 billion export deal that was quietly ushered in for Petronas while the media focus was on Enbridge’s Northern Gateway heavy oil pipeline proposal and tar sands expansion under foreign state-owned enterprises (SOE).

At the time, we exposed how Petronas moved to dominate the BC LNG landscape as Stephen Harper offered hollow assurances about foreign SOEs not owning and controlling too much of our domestic resources, all while our own crown corporations were being hobbled and scrapped.

Now, at the eleventh hour as it relates to the fiscal and legislative framework for LNG, it is time to counter Petronas and their “Hard Ball” tactics with some hard ball of our own and not simply rely on the softball antics and deceptive backroom shenanigans of the Clark and Harper regimes.

Petronas ain’t no saint

In recent years, while Petronas was topping out as the most profitable Asian company on record, according to the Fortune 500, they were also becoming mired in several corruption cases – including a series of indictments brought by the US Department of Justice in 2009 for foreign bribery conspiracy.

Another case, announced by the Malaysian Anti-Corruption Commission in 2013, involved two senior Petronas employees charged with money laundering and taking bribes in connection with a pipeline deal. Then, earlier this year, Petronas subsidiary MISC was implicated in a global corruption scandal stretching over 6 years and centering on Dutch company SBC Offshore.

In fact, corruption has been so rampant that the company was forced to develop exhaustive, internal anti-corruption policies to regain credibility. This was all happening at the same time Coleman was signing non-disclosure agreements to begin negotiations on BC LNG.

Since adopting anti-corruption measures and negotiating with BC behind closed doors, Petronas has done deals in Chad – a failed state considered to be of the world’s most corrupt – and signed an agreement with Mexico the same day they threatened to pull out of BC. This despite Mexico’s infamous levels of corruption and inability to keep drug cartels out of their publicly-owned oil and gas infrastructure, as detailed here by VICE News.

So, with a simple google search, we can detect a pattern of corrupt deals done in backrooms, while PR outfits and social license machines manipulate public opinion. Yet in BC, this is apparently the path to “prosperity.”

Foreign trade and investment deals compound threat to BC

The Harper government recently ratified two significant agreements that will impact BC LNG in profound ways with more to come. The FIPPA and South Korea Trade agreements top a long list of MOUs and Letters of Intent that has thoroughly defined how LNG will unfold here in BC for more than a generation.

And that is just the public face of these complex, far-reaching deals. Coleman and his backroom, Third World-style, “confidential” negotiations no doubt involve myriad ugly details – many of which we will never know.

Here is what we do know

Despite Coleman’s non-disclosure agreements, we are able to ascertain some details of the colossal, unprecedented multi-billion dollar fleecing we are about to “lock in” for generations.

BC has already publicly committed to being one of the world’s lowest cost…errr… “most competitive” jurisdictions on earth. We are already reaping the lowest royalty rates in the world. But apparently that is not good enough for the Malaysian government-owned Petronas, which has been historically responsible for up to 50% of that country’s total operating revenue.

The tax rate proposed for exporting LNG will only apply after all costs have been recouped by Petronas and all other LNG proponents. But even then, the rate will be a paltry “up to” 7%, which may start rolling into provincial coffers 3 election cycles after Clark/Coleman promised.

Clark/Coleman are also somehow magically responsible for not only provincial taxation rates but federal export taxes as well, while at the same time imposing caps on the ability of regional and municipal governments to recoup fees and taxation. Gotta love those smoky backrooms.

The BC Liberal government has also committed to allowing LNG proponents to burn natural gas to power LNG facilities, despite longstanding promises and legislation to thwart climate change and meet reduction targets. Moreover, no certainty exists around whether or not provincial taxes will apply or if the much-ballyhooed BC carbon tax will be charged.

Petronas has already secured investment and offtake contracts from India, China, Brunei and Japan. In doing so, they recouped their original 5 billion-dollar-plus investment to takeover Progress Energy and dominate the BC LNG landscape.

Petronas is now seeking up to $15 billion in debt financing to build out their estimated $9-11 billion dollar coastal LNG plant and supporting $5 billion dollar pipeline infrastructure – which would be the largest debt financing deal in our country’s history.

Meanwhile, Petronas has undertaken the single largest drilling expedition in BC history to prove out reserves for LNG export.

Why BC should tell Petronas to get stuffed

Since Harper approved the Petronas takeover of Progress Energy, on a Friday night in 2012, Petronas has displayed why they are the most successful Asian player in this game.

They have secured enough long-term, international investment in our BC fracking fields to recoup the entirety of their original takeover investment – while ensuring they maintain controlling interest – and are still seeking yet another partner in their 400 billion-dollar BC export deal, to reach the 49% share they stated was their international investment target.

They have already long supplied huge markets like Japan, which has historically made up 60% of their LNG offtake agreements, and has partnered with them on this BC LNG scheme.

The deals they have already arranged are of great benefit to foreign-owned SOEs the world over and the debt financing they seek ensures that international trading and financing houses will receive a bigger piece of the BC LNG pie than Coleman has negotiated for BC, with his paltry tax rate for at least the next decade, maybe two.

Petronas requires a secure, long-term supply of oil and natural gas/LNG as their domestic supply is dwindling fast, forcing them to cut deals with dubious regimes in Chad and make unsavoury deals with Mexico.

In other words, BC is vital to their future success and will secure their business plans for decades.  As a result, we – the BC public – have them over a barrel, so to speak, but Clark and Coleman have so poorly positioned us that we are not only showing our hand but seem prepared to give away the farm simply to deliver on a deal promised during an election campaign.

The reason Petronas is able to “play hard ball” is because Coleman/Clark and Harper have delayed what should be simple taxation regimes which they have long promised yet failed to deliver – repeatedly. This despite basing their entire economic agenda on oil and gas development, while sitting in backrooms, negotiating these very details with these same companies for years, by their own admission.

All of which means British Columbians and Canadians as a whole are completely dependent on a handful of powerful political players negotiating our destiny under non-disclosure agreements with no accountability, no terms of reference or mandate, and no reason to deliver for average people. It’s just like any Third World country – or Malaysia, for that matter, where the citizens see no appreciable benefits trickling down to improve their quality of life or standard of living.

It’s time British Columbians wake up to these realities – our future depends on it.

News this morning that Malaysian energy giant Petronas is considering pulling out of the nascent BC LNG industry over the taxes the province wishes to collect from its gas resources called to mind a legendary story about Tommy Douglas when he was premier of Saskatchewan.

I cannot attest to whether the tale is true or apocryphal, but it’s certainly instructive to British Columbians in this particular situation. It goes like this:

After meeting with oil tycoons considering doing business in the province and trying to secure a royalty and investment climate beneficial to their interests, Premier Douglas emerged from the closed-door gathering, whereupon several reporters asked him how it went.

“Well, I’ve got some bad news and some good news,” Douglas told the press.

[quote]The bad news is the oil companies are leaving…The good news is they’re leaving the oil behind.[/quote]

Douglas was right. The resource wasn’t going anywhere – and no sense developing it unless its owners (the citizens of the province – how often forget this) stand to get their fair share.

If market prices or the costs of extraction don’t allow for that, then we can always leave it in the ground until such time as they do.

Flash forward to present-day BC and a familiar pattern is repeating itself. The oil and gas industry wants our resources, but they don’t want to pay for them. Whether BC Premier Christy Clark has the fortitude and vision of Douglas remains to be seen.

Petronas threatens to take its ball and go home

The latest round of fretting over the future of BC’s yet-to-be-built LNG industry derives from some tough posturing in the Financial Post by Petronas CEO Shamsul Abbas, who is threatening to cancel the company’s planned development of a gas pipeline and LNG plant in Prince Rupert.

Among Abbas’ chief complaints are delays in regulatory approvals, the province’s intended export tax for LNG – the basis for its wild-eyed election promise of a $100 Billion “Prosperity Fund” to pay down our sizeable provincial debt – and a “lack of appropriate incentives.”

Said Abbas to the Post, in advance of an expected visit with Premier Clark next week:

[quote]Rather than ensuring the development of the LNG industry through appropriate incentives and assurance of legal and fiscal stability, the Canadian landscape of LNG development is now one of uncertainty, delay and short vision. [/quote]

What does he have to complain about?

Now, let us decode Mr. Abbas’ comments. What, exactly, is he seeking for his company, in order to do business in BC?

First of all, Mr. Abbas doesn’t want to be regulated. “Don’t kill the goose before it lays the golden egg,” he told a global LNG conference hosted in Vancouver by the Liberal government earlier this year.

And I don’t mean that he doesn’t want too much regulation. He wants none. In the early stages of the company’s application for an $11 Billion LNG plant – situated in the middle of critical salmon habitat in the Skeena River Estuary – the Canadian Environmental Assessment Agency suggested it may not require any environmental assessment at all.

This for a project that could “collapse” wild salmon stocks in BC’s second most important salmon river, according to SFU Assistant Professor Jonathan Moore.

When its bid to slide under the environmental assessment radar failed, the company appears to have come up with another ingenious method for avoiding regulation: It erased the Skeena River and estuary from its project maps. Of course, this was later put down to a simple “data error” – but the furor over the incident led to an extended public comment window for the project – which, naturally, Mr. Abbas must have thought deeply unfair. Is this any way to treat a potential investor of billions into BC’s economy?!

But are they really “investing” – or, as we’ve documented in these pages, have we simply given them a massive, sweetheart deal on our gas, via a 25-year export licence and the cheapest royalties in the world? More on that later.

Other regulatory goodies

An easy ride from environmental assessors is far from the only regulatory perk this industry has tried to secure.

We learned recently from the Canadian Press that the controversial, aborted attempt to cancel all future environmental assessments for sweet gas plants in BC was driven by the oil and gas lobby, CAPP.

Moreover, in buying up Talisman Energy earlier this year, Pertronas obtained a licence to 7.3 billion litres of fresh water a year from our public Williston Reservoir for its fracking operations in northeast BC. This licence was quietly awarded by the ministry in 2011 without public consultation – and amounts to a massive giveaway of water, pillaged from our public dam, before it can be converted into electricity.

And when Petronas ran into trouble over its plans to plough a pipeline through a provincial park and important grizzly bear sanctuary, we simply changed the Parks Act for them.

Of course, all these provincial goodies come on top of unprecedented federal environmental deregulation for the benefit of the oil and gas industry over the past several years.

List of demands

More than cutting all that pesky red tape, what Petronas wants is government handouts – and not to pay any royalties or export taxes.

The company has been actively seeking tax concessions from the Harper government, including boosting its capital cost allowance from 8% to 30% – an estimated savings of $75-100 million for every billion dollars spent, says UBC Sauder School of Business Professor Kin Lo.

This comes on top of millions in royalty credits and other incentives the industry has already secured from BC.

On that note, British Columbians are often reminded just how much this industry benefits our public coffers. Well, that, it turns out, is a gross distortion, as Norm Farrell recently laid bare in these pages – a must-read.

Thanks to credits in the region of half a billion dollars a year against royalties owed by the gas industry to the public, we now obtain just 0.1% of our annual provincial budget from oil and gas revenues.

Sure, there was a time when this industry made a valuable contribution to our tax base, but those days are long gone – and Mr. Abbas would like to keep it that way.

What jobs?

As to the jobs the industry bandies about, again, they are far overblown compared to the reality, which has the oil and gas sector ranking at the bottom of the barrel in job creation for the province.

And don’t forget, our Minister of Natural Gas just signed an agreement with China to supply workers to build the BC LNG industry – supported by changes to our federal labour laws that allow any company to pay a foreign temporary worker 15% less than a Canadian doing the same job.

The incredible, disappearing export tax

Now, to the much-vaunted export tax that we were promised during the last election would erase our provincial debt, pay for hospitals, roads, and all manner of wonderful things.

Well, as my colleague Rafe Mair recently noted, what was once our premier’s “$100 Billion Prosperity Fund” has now shrunk to mere, undefined “billions”.

But it was never going to be anything near $100 Billion in the first place. After much negotiating in secrecy with the likes of Abbas, and multiple delays, we finally caught a glimpse of the province’s proposed export tax in this year’s budget. And what did we find? I’ll let Kevin Logan’s February column on the subject do the talking:

[quote]Effectively, BC will not realize any serious revenue from LNG until – wait for it – not this mandate, nor the next administration, but beyond the election after that!

The two tier tax regime floated by the finance minister does not start until ships are leaving our coast full of LNG, and for 3-5 years after that it is “tier one” rates of 1.5%. However, the kicker is that every nickle paid to BC under the pathetic 1.5% tier one rate is given back to the companies once tier two is reached.

Tier two taxation is only achieved once the LNG companies we let set up shop have recovered 100% of their costs…And once they have recovered costs, the tier two taxation rate of “up to” 7% kicks in – at the same time all the tax paid under tier one is given back to the companies through rebates.[/quote]

Now bear in mind that all this – this amazingly sweetheart deal the industry already has had lain at its feet – is still not good enough for Mr. Abbas.

That’s because he doen’t want to pay lower royalties and taxes. No, to Petronas the only appropriate rate of taxation is, essentially, ZERO. And if they doen’t get it, they’ll take their ball and go home.

Well, I can tell you what Tommy Douglas would say to that.

By Norman Farrell

Regular readers are aware that British Columbia’s natural gas industry provides surprisingly little return to the province by way of royalties for depleting non-renewable public assets. In the last two fiscal years, after accounting for drilling and road subsidies taken by or owed to producers, the province’s net gas royalty receipts averaged $2.5 million a month. That is less than 1/10 of 1% of BC government revenues.

Defenders of government policy suggest the industry is contributing much economic value to BC through jobs. Yet, government statistics show that only about 3,000 people are directly employed in oil and gas extraction. Education and manufacturing each provide more than 50 times as many jobs. Retailing, almost 100 times as many.

In 2013, Christy Clark’s government resisted calls from the motion picture and sound recording industry for subsidy increases, yet this non-polluting, non-depleting industry provides four times as many jobs as oil and gas extraction. It stimulates cultural and tourism activities and costs a fraction of the subsidies flowing to oil and gas production.

As Premier, Clark pays little attention to forestry, the traditional engine of our economy. The only part of the industry that remains busy is logging, a function that cannot be moved out of province.

So questions arise. What influences a government to offer special treatment to one particular economic sector that provides scant economic return and relatively little employment?

Who and where are the real beneficiaries? In what jurisdiction, if any, is corporate income tax paid on profits of gas production and sales?

Were decisions to provide public funds and public assets fairly determined or were they improperly influenced by the flow of cash from industry to the holders of political power?

I think the answers are self-evident. British Columbia is governed by captives of industry.

NOTE: The chart below illustrates some of the hidden costs to BC taxpayers of subsidizing the natural gas industry. Feeling that they overpaid for leases that are yielding few profits with fallen gas prices, the industry has been granted a series of royalty deductions, now totalling some $5 Billion. Factoring in other ministry expenditures to the benefit of the industry, the natural gas sector has actually received $6.5-7 Billion in taxpayer subsidies since 2008.

Norman Farrell is a BC-based political blogger and publisher of Northern Insights