CALGARY - Alberta Premier Ed Stelmach found himself brushing off comparisons to a South American socialist revolutionary Friday as he defended his aggressive plan to increase Alberta's energy royalties by 20 per cent.
Stelmach told listeners to radio talk show that he shouldn't be compared to Venezuelan President Hugo Chavez, who recently raised royalty and tax rates on all foreign oil companies as part of a nationalization plan.
"I can tell you that this isn't Venezuela. This is Alberta," the premier said. "Alberta is without a doubt the best place to invest in North America. We have the lowest personal income taxes, low corporate taxes."
The energy industry was left reeling after Stelmach's announcement Thursday after the markets closed that royalties would increase by roughly $1.4 billion by 2010. Industry and investment leaders had been warning for weeks that such a hike would hobble the energy boom that has made Alberta the fastest growing province in Canada.
The full impact of the royalty hike is starting to hit home with the people who work in the industry, said Wilf Gobert, an independent energy analyst who lunched Friday with the head of a major geophysical company.
"This morning they got telephone calls from customers that have cancelled 30 per cent of their work for this winter in Alberta," he said. "This is going to affect small-town Alberta. Geophysical work is done in the four corners of the province."
A leading Alberta economist said he fears Alberta's reputation in the international business community could be damaged if the province "tears up" existing royalty contracts with Syncrude and Suncor, which currently run until 2016.
"I think the longer term, more serious issue from the perspective of whether Alberta is perceived as a good place to do business is how we deal with these contracts," said Mike Percy, dean of business at the University of Alberta.
But Friday's market response to Stelmach's decision was less dramatic than some experts expected. Shares in Suncor (TSX:SU) opened down 3.4 per cent, while shares in Petro-Canada (TSX:PCA) and Imperial Oil (TSX:IMO)were down less than one per cent.
"Looking at some of the financial markets, I didn't see much of a decline. In fact, I thought everything held its own," Stelmach told reporters Friday afternoon, adding that he won't back down on the changes.
"The decision has been made. The framework starts Jan. 1, 2009, and we're not moving off the decision, period."
More political criticism surfaced Friday when Liberal Opposition Leader Kevin Taft accused the premier of being too soft with the changes.
"We would have liked the bottom line to be the same as what the royalty review panel recommended, which still wouldn't have got Alberta to even the middle of the pack in the world," said Taft.
The government-appointed review panel recommended royalty increases worth roughly $2 billion starting next summer and a new tax on oilsands projects, which the government rejected.
Panel members met privately over coffee Friday morning to discuss the report and one panel member later told The Canadian Press that having the government reject nearly half of their recommendations was "a bitter pill to swallow."
He also said the government is being overly optimistic with its expectation that royalties will increase by roughly $1.4 billion.
"They'll be lucky under the new regime to even collect the status quo," he said. "Whatever comes out of this isn't going to be pretty for the province of Alberta."
Panel chairman Bill Hunter is expected to give his first response to the new royalties early next week.
Stelmach has also promised a communications plan on the new royalty regime. Quarter-page ads appeared in Friday newspapers saying it offers future generations a fair share from Alberta's resources while providing stability for the oil and gas sector. The ads featured a photograph of the premier and the quote: "I made a commitment and I delivered."
Energy Minister Mel Knight announced Friday he's heading to the U.S. to meet with government officials, investment firms and energy industry leaders to talk about the new energy royalties.
Knight will visit Washington, New York, Boston and Chicago next week to sell the idea of "investment opportunities and continued security of supply to our principal export market."
The minister said he wants to reassure international investors that "Alberta continues to be very much open for business" and he believes they "will continue to view our province as a safe and secure place to do business."
Percy said the superheated Alberta economy may be able to withstand a slowdown in the energy sector.
"If there is some slowing down, then it's likely to take some of the cost pressures away," he said. "We might see slower wage growth and we might have fewer labour shortages."
However, using higher royalties to slow down the economy "is a pretty blunt weapon," he said.
