Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Friday, March 29, 2013

Good idea for Canada? How Norway captures oil revenues to benefit Norwegians

Canada is one of the only jurisdictions in the world that allows private, foreign ownership of public oil resources. Norway has held more tightly to its public resources. With a world-class pension fund delivered by oil and gas revenues, it has mastered the balance between its oil and gas industry and its national interests. Now as debates heat up over Canada's oil sands and its economy, critics are calling on Harper's Tory government to learn from Norway's success story.

Norway's oil boom and smart energy strategy

Norway's oil and gas boom started in the late 1960s when exploration revealed huge offshore oil and gas deposits in the continental shelf. Since then, the nation has become known around the world for its bold energy strategy and policies—including high taxation rates for oil companies and permits that regulate the volume of extraction.

Through the State’s Direct Financial Interest (SDFI) arrangement, the Norwegian State participates directly in the petroleum sector as an investor, and reaps all the associated rewards. According to the Ministry of Petroleum and Energy website, “the net cash flow resulting from the SDFI portfolio constitutes a predictable, long term and secure revenue to the Norwegian State.”

With a population of just five million, the small Scandinavian country is now the second largest gas exporter and the seventh largest oil exporter globally. The government owns significant stakes in the international oil giant, Statoil, in addition to the state-owned company Petoro. Most importantly, the revenues generated by state involvement in oil and gas have allowed the country to not only eliminate its debt but also to create an impressive $550 billion government pension fund—one of the biggest in the world.

During a lecture last November at the University of Ottawa, Norwegian Minister of Petroleum and Energy Ola Borten Moe told Canadians how this arrangement has created a reputable balance between resource development, the national economy and the environment.

“The right to any subsea deposit of oil and gas is vested in the state. This is crucial when you want to manage the resources to the benefit of the people,” said Borten Moe. “We had the resources under the seabed. The companies contributed with their skills and knowledge, both to discover fields and produce them. At the same time, they were obliged to help us build national experience.”

While Norway invited the international oil industry to take the lead in development, the Ministry says the state has maintained a healthy relationship with industry stakeholders: the oil companies are seen as “helpers” in harnessing the country’s natural resources, but ultimately, the oil belongs to the nation and its citizens.

Despite 40 years of intensive production, the country still has about 60 per cent of their resources remaining. Separating resource revenues from the rest of the economy has also helped Norway avoid the so-called “Dutch Disease”, said to occur when an oil-based economy raises the currency and displaces a crucial manufacturing sector.

Oil and gas resource management, done right

The idea of using oil and gas revenues to benefit citizens is not new to Canadians. As noted in 2010 by Green Party leader Elizabeth May, the big irony is that Norway’s pension fund was actually modeled on the Alberta Heritage Fund, launched by Conservative Premier Peter Lougheed in 1976. That fund sits at just over $15 billion. Within the same timeframe, Norway has managed to collect over 35 times that amount.

Peter Nemetz, an economics professor from the University of British Columbia’s Sauder School of Business, told the Vancouver Observer last year that Canada’s current stance on royalties and regulation is to blame for this drastic difference.

“The Norwegians...have insulated their economy from the 'Dutch Disease' by investing this money in foreign assets and financial instruments. In contrast, Alberta has built up only a modest fund, largely because of their timid approach to royalties,” said Nemetz.

He recalled a “blue ribbon panel” of experts commissioned by Premier Ed Stelmach in 2007, which at the time recommended that the province boost the fund to $110 billion by 2030. Jack Mintz, who led the panel four years ago, recently told the CBC that saving that money makes even more sense now than it did at the time. With business thriving in the tar sands and oil prices on the rise, critics and economists say the government needs to seriously consider increasing royalty rates for resource extraction.

“As I remember, the government started to implement these rates but backed off because of industry threats to take their business elsewhere,” Nemetz said. “This strikes me as a hollow threat, because the energy resources remain in Alberta and are highly prized.”

Government vs. oil companies: who gets the upper hand?

Even if Canada were to hike up royalties and put more resource revenues into pension funds, there’s still a broader issue at play that separates our case from Norway’s. In Norway, the state has the upper hand—they ultimately retain control of the resources and oil companies generally play by the government's rules. Here in Canada, however, industry players appear to have an increasingly dominant role in determining policy.

“I think it is reasonably clear that the oil and gas industry in Alberta and Canada have a great deal of influence. It also appears likely that this influence has grown under the current Conservative government in Ottawa given the Prime Minister's political background in Alberta,” said Nemetz.

“This influence has been evidenced more recently in the federal government's domestic and international campaign on behalf of the oil sands, as well as the recent initiative to ‘neuter’ the Fisheries Act, which has played a critical role in protecting water quality in Canada for several decades. It has been posited recently that one of the motivations for the proposed changes to the Fisheries Act is the desire to facilitate the Enbridge pipeline across BC.”

Sovereign wealth fund and the Dutch disease

Peter Jarrett of the Organization for Economic Co-operation and Development sees Norway’s sovereign wealth fund as a cure to Canada’s Dutch disease. “Norway is the prototypical example [to look to] because they have oil coming out of their ears,” Jarrett told the Globe and Mail. “Oil to the Norwegian economy is much bigger than oil to the Canadian economy. If they didn’t do anything, then the Norwegian krone would have shot through the roof. They would have had Dutch Disease galore.”

By putting money away for the future on a decent size scale, the dollar would be weaker and the pressure on manufacturing would be less. The Dutch disease would not be a problem.

Original Article
Source: vancouverobserver.com
Author: Alexis Stoymenoff and Carrie Saxifrage 

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