Lougheed sounds alarm
Alberta is growing too fast and the government should slow the boom to allow construction of support services to catch up
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by L. IAN MacDONALD
The Gazette, Wednesday, July 19, 2006
When Peter Lougheed took office as premier of Alberta in 1971, the price of oil was $3 a barrel, before the OPEC oil cartel tripled it to $9 a barrel in 1973, and before it tripled again to $27 a barrel after the Iranian revolution in 1979.
But did he ever, during his 14 years in office and more than 20 years since leaving it, foresee oil at $75 a barrel?
"No, I didn't," Lougheed said the other day. "I knew it would go up steadily, but I never expected that. It wasn't in my forecast."
From his corner office on the top floor of the 47-storey Bankers' Hall tower, the entire booming city of Calgary, building out to the foothills of the Rockies, lies before him. The foundations of today's energy boom were laid in the 1970s. The bust precipitated by the disastrous National Energy Program in the 1980s is a bitter reminder that no one in Alberta takes prosperity for granted.
Both the boom of one decade, and the bust of the next, occurred on Lougheed's watch between 1971 and 1985, by any measure one of the most significant and successful provincial premierships of the 20th century. He founded the Progressive Conservative political dynasty that still reigns after 35 years in office, with no sign of it ending any time soon.
In the 1970s, he was the face of Alberta's prosperity, carefully husbanding its new-found wealth with the creation of the multi-billion-dollar Heritage Fund. In the 1980s, he was the staunch defender of Alberta's interests against Ottawa's incursions onto its energy turf.
When he walked away from it all in 1985, he left by the front door. His career since is proof there can be a fulfilling life after politics. He joined the boardroom Calgary law firm of Bennett Jones, accepted a bunch of corporate directorships, signed up for volunteer roles such as the chancellorship of Queen's University, and kept up his interest in the public-policy process.
"It's been a good balance," says Lougheed, now 78 but still a commanding figure, and still with that famous steely voice. "I didn't want to be a CEO. I didn't want to run anything, I'd been running the government of Alberta."
Lougheed knows the influence of the elder statesman is measured in inverse proportion to the frequency of his declarations. His interventions on public policy are highly infrequent, thus, duly noted. And lately he has had something on his mind, the overheated Alberta economy and the runaway development of the province's oil sands.
For one thing, he's opposed to using natural gas to extract the oil from the oil sands. For another, he's concerned that the royalty regime shortchanges the people of Alberta. He also worries about the inflationary effects of an overheated economy.
"The Alberta government has let the development get ahead of the infrastructure," Lougheed says. "And when that happens, you start to pay a price for it."
And by infrastructure, he means, "the highways, the utilities, the schools, the hospitals and all the services that are required at Fort McMurray." Not to mention a chronic housing shortage.
Lougheed, who recently toured the Fort McMurray area by helicopter calls it "a mess" and "a moonscape" and is suggesting a pause in further development until the infrastructure catches up.
Moreover, he says serious cost overruns in building oil-sands plants will delay royalty returns to the government that will kick in at the conventional rate of about 20 per cent only when the net costs of development are met. Meantime, royalty payments are a measly one per cent. One plant forecast at $5.5 billion came in more than 100 per cent over budget, and Albertans are paying for the cost overrun in foregone royalties.
"What about the people of Alberta?" Lougheed asks. "How do we get our return?" Again, he refers to "the people of Alberta, who own the resource. A lot of people in this town have a problem with the word ownership, but the ownership is with the people."
As for using natural gas for extracting the oil, Lougheed sees that "as an environmental issue, but it's also an economic issue."
He thinks it's unwise, given "flat" natural-gas supplies.
"We are not gaining in terms of our natural-gas production, so we have to be careful with that and stretch it out. In my view, it's such a valuable resource it shouldn't be used in the oil sands, it should be used in the marketplace."
And finally he worries about Alberta's seven-per-cent wage inflation in an overheated economy that is creating one-third of all the new jobs in Canada and still faces a serious labour shortage.
"Who are the beneficiaries of all this?" Lougheed asks. "First of all, you create an inflationary environment in the country, that's one thing. And we see right here in the city of Calgary, the cost of housing is far higher than it should be (up 35 per cent in the last year alone). You are going to pay in a bunch of ways. People on lower incomes are going to suffer in a city and province of this nature. There's a lot of negatives in an overheated economy, and we truly have an overheated economy in Alberta today. The question is its sustainability."
Clearly, Lougheed is at ease in the role of elder statesman, still motivated by public policy and the public interest, but with no trace of nostalgia for being at the centre of the action. "We're fine," he said with a smile.
He certainly is.