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The Tory government says its competitiveness review will ensure Alberta's royalty and tax rates are among the lowest three of competing jurisdictions, which has opposition parties and economists worried about a fire sale on provincial energy plays.

 

The long-awaited competitiveness review, which the Stelmach government has already said will overhaul conventional oil and gas royalties, is expected to be publicly released in early March.

But the Energy Department's new three-year business plan released with last week's budget offers a glimpse of the province's goals for what is its second royalty review in three years.

Alberta, according to the 2010-13 plan, will have a combined royalty and tax rate that is among the lowest three of all competing jurisdictions, including British Columbia, Saskatchewan and nine U.S. states.

New Energy Minister Ron Liepert said the competitiveness review, indeed, aims to follow the goals laid out in the budget documents of having among the lowest royalties and taxes anywhere.

"That will be the objective of the royalty review," Liepert said. "I look at it more as an upper percentile, upper quarter percentile, somewhere in that range."

Some of the drilling incentives currently offered up to industry, which are expected to cost the government more than $1.5 billion in lost revenue over three years, could become permanent in nature as part of the review, the minister noted late Tuesday during debate over his department's budget estimates.

The government's competitiveness review team -- which includes former Nexen vice-president Roger Thomas and ex-Royal Bank of Canada investment banker Chris Fong as top advisers -- is expected to deliver recommendations affecting regulations, royalties and other taxes. Oilsands development is not part of the government review.

The new three-year business plan says the provincial study will also consider: crude oil and natural gas production; oil and gas prices; land sales; total metres drilled; total expenditures; average number of active drilling rigs; pipeline utilization; and employment.

"It's to grow the economy," Premier Ed Stelmach said about the review. "So this fear about making less money going through a review; why would you do a review to diminish your economy? You want to grow your economy."

But the province's push to keep royalties among the lowest in North America comes as it already has failed, for several consecutive years, to reach its own target of collecting 20 to 25 per cent of the industry's net operating revenue from energy development.

Instead, the figure has been 19 per cent, but is being reevaluated under the new royalty framework that took effect in 2009.

Andre Plourde, energy economist at the University of Alberta and member of the province's 2007 royalty review panel, said the Stelmach government's push to spur activity and job creation -- through the competitiveness review -- isn't securing optimal return for Albertans who own the resources.

"The government is much more interested in activity than it is in securing the most it can for the resources," Plourde said. "You're clearly not getting as good of deal for the owners."

However, he noted the new political reality in Alberta is that the top three parties in the legislature -- the Progressive Conservatives, Liberals and Wildrose Alliance -- all seem to favour activity in the short term during a lower-price environment instead of capturing the most for a resource that would be developed in future years.

The province's current royalty structure has been altered five times since it was announced in October 2007, including introducing the oilpatch drilling incentives that are costing the government in lost revenue.

Calgary Liberal MLA Dave Taylor, whose party just unveiled a new energy sector policy stating Alberta's economic health is tied to that of the oilpatch, argued the government's drilling incentives were likely needed because of flaws with the new royalty plan.

He wouldn't say whether placing Alberta among the lowest royalty charging jurisdictions is the appropriate balance between attracting investment without giving away the resource at discount prices.

"We've got to be really careful here not to get caught up in a race to the bottom," said Taylor, the Liberal energy critic. "That's going to be a tough thing to get the balance right on."

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