Ralph Klein had a knack for being in the right place at the right time – especially for the oilsands
This article appears in the June issue of Oilsands Review
By
Peter McKenzie-Brown
Former Premier Ralph Klein’s death at the end of
March was greeted quite differently from that of Peter Lougheed, who had also
been premier and had died six months earlier. Lougheed was seen as an elder
statesman, and his passing was mourned across Canada. The mourning that
followed Klein’s death – caused by a rare lung disease, and complicated by an
uncommon early-onset dementia – was shorter in duration and more provincial in
scope.
It seemed as though everyone in Alberta had a great
“Ralph story” to tell, and as often as not people would refer to him
affectionately as Ralph or, reflecting his political style, sometimes King
Ralph. A man celebrated for his common touch who on occasion tearfully acknowledged
that he drank too much, he was well known at favourite watering holes like the
bar at the run-down King Edward Hotel in Calgary. He was a political fixture in
Alberta for a quarter century, beginning with his election as the mayor of
Calgary in 1980. His illnesses prevented him from experiencing much retirement;
they were diagnosed soon after he left office. Klein was 70 years of age.
Klein was not a good planner or a gifted thinker.
However, during his term he was endowed with good luck – especially in respect
to the oilsands. Three of Alberta’s 14
premiers have played major roles in oilsands development. The other two were
Ernest Manning (1943-68) and Peter Lougheed (1971-1985). On Premier Klein’s
watch (1992-2006), however, the industry grew into an economic giant. One
reason is that government and the oilsands industry prepared for growth. The
other is that during the reign of King Ralph, as he was also known, oil and gas
prices tripled.
The early part of the Klein era was just awful for
Canada’s petroleum industry in general and the oilsands business in particular.
Shortly after Klein took office both the federal and Alberta governments withdrew
financial support from the OSLO oil sands plant, which would have relied on
loan guarantees and tax and royalty concessions to become profitable. Klein
famously described his government as being “out of the business of business” –
an early indicator of what the Klein era would look like.
The Surge
When he took over from Premier Don Getty, Klein
inherited “a bloated bureaucracy and an angry electorate,” as one commentator
put it.. Alberta faced large and growing
deficits and was desperate for a more balanced budget. Desperate for more jobs
across Canada, Prime Minister Jean Chretien (1993-2003) had just handily won an
election in Ottawa. The major plank in his election platform? Economic
opportunity. Oil prices were in the tank and the industry was desperate for
investment opportunities.
Thus was the stage set for the industry’s great
surge forward.
Klein had barely moved into his new office when the
Edmonton-based Alberta Chamber of Resources formed a Task Force on National Oil
Sands Strategies in 1993. Eighteen months later the multi-stakeholder task
force issued a report titled “The Oil Sands: A New Energy Vision for Canada.” In
clear and compelling prose, the report outlined eight areas where players in
the emerging oil sands industry could help the industry grow – by developing
new markets and more, for example, a pipeline system that better served areas
where bitumen was being produced.
However, the key to growth was a better fiscal
regime. According to the task force, “The Federal and Alberta governments…should
develop a generic set of harmonized tax and royalty measures based on economic
profits. Such a system will provide a consistent fiscal framework for all oil
sands projects and result in a balanced sharing of profits. These common fiscal
terms are necessary for the future development of Canada’s oil sands.”
After the release of the task force report, Klein’s
government immediately began looking for ways to implement its suggestions, and
in September approved a generic oilsands royalty and tax regime that would
apply to all new projects. New projects would pay the province a 1% royalty on
production until net project revenue had paid out all start-up costs. At that
point, the royalty would rise to 25%, although all capital costs, including
operating, research and development, were fully deductible in the year they
were incurred. This was radical, and the free-market Klein government deserves
credit for stepping up to the plate without hesitation.
Historian William Wylie once described how the key
players in the oilsands have changed over time. “The federal government was the
principal actor between 1875 and 1918,” he said, “at first from a sense of
responsibility for regional development, and near the end of the period from
strategic considerations.”
In the 1920s, though, “the government of Alberta
became the major force, in part in order to assert its claim to control
provincial resources. In the 1930s, two private companies showed signs of
promise and the two governments pulled back in deference to private development
and in order to cut costs. The 1940s were years of increased involvement on the
part of both levels of government due partially to strategic considerations,
and to the power struggle between them. In the 1950s, the conventional oil boom
in the province took attention away from the oil sands and delayed their
development until the 60s and 70s when the long run decline of the conventional
reserves was finally anticipated. When commercial development occurred, private
industry was the major agency, but with considerable governmental backing as
well.”
Then, the industry morphed into another phase. In
1992 the industry began to enter a new era of oil sands policy – one that is
now two decades in duration. Call it the Klein legacy; it is a period in which
financial responsibility for oil sands development lies entirely with the
private sector. It has already been the longest-lasting of the major periods of
oilsands policy, and in the near future seems unlikely to change.
What has made this new era so solid is that during
the Klein era conventional oil prices rose from about $19 when he began his
term to $63.43 on the day he retired. Gas prices also more than tripled, from
$2 to $7. To a large extent driven by the US-led invasion of Iraq, these surges
pulled bitumen prices along.
The outcome was a flood of oilsands spending in the
province. Suncor began a series of mining and in situ expansions that made it
Canada’s largest petroleum company. Syncrude also announced large expansions. Both
companies introduced technologies and operations that led to huge reductions in
the cost of production.
In 1999, a Shell-led consortium began its Muskeg River
Mine oilsands development – better known as the Athabasca Oil Sands Project.
The project went on stream in 2003. Construction of Canadian Natural Resources
Limited’s Horizon project began toward the end of Klein’s term, with the first
phase completed in 2009.
The
Klein Legacy…
Oddly enough, as he completed his term as one of
the most popular premiers in Alberta’s history, Klein held a news conference in
which he essentially proclaimed himself a failure. On the matter of oilsands
development, he was partly responding to general criticism by Peter Lougheed,
who had called for more limited oilsands development. “What’s the hurry?”
Lougheed had asked. He was concerned about the environmental and social impacts
of oilsands development. “Why not build one plant at a time? I hope the new
government in Alberta will reassess this and come to the conclusion that the
mess, and I call it a mess, that is Fort McMurray and the tar sands will be
revisited.”
In his sometimes tearful farewell, Klein said he couldn’t
have imagined how forcefully the industry would respond to the royalty and tax
changes of the mid-1990s. Thus, his government didn’t have a plan for how to
deal with the spectacular growth that followed. Of course, any other premier
would have basked in the glow of leaving behind an economic boom.
That Klein didn’t have a plan more or less
characterizes the man himself. According to one biographer, his government was
anything but ideological. It tended “to act first and think later, impulsively
adopting elements of the neo-conservative agenda without having an overall
strategy.”
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