JAMES MAY

Peter’s Principles

Peter Lougheed kept a low profile for years. Now he’s speaking out. But are the Tories listening?

By Sheila Pratt

As the summer barbecue season of 2006 faded into fall, that legendary Alberta optimism took an unexpectedly cranky turn. The biggest boom in history was rolling over the province, bringing jobs galore, fat paycheques and a new fleet of Hummers to city streets. The flow of newcomers from other provinces had already surpassed the 1970s boom, and an army of foreign workers was about to arrive. With oil hovering at around $70 a barrel, the future seemed brighter than ever.

But that wasn’t enough to temper those nagging doubts simmering beneath the surface. It was the best of times, supposedly, but who could afford a house or find an apartment? Amid all this plenty, there weren’t enough schools, hospital emergency wards were overcrowded, city streets grew congested and tuitions were among the highest in the country. While the provincial government wallowed in surplus cash, cities were hacking back their long list of road repairs and new services as inflation ate up 20 to 30 per cent of civic budgets. City property taxes kept rising, but royalties paid by oil companies certainly did not. It was enough to make Albertans wonder what exactly they were getting out of this boom. When Ralph Klein admitted in late August that his government had no plan to handle these growth pressures, unease turned to frustration.

The disenchantment got worse a few weeks later, when oil giant BP announced it would spend $3-billion retrofitting its Chicago refinery to upgrade the sticky bitumen from the Fort McMurray oilsands. In early October, Canada’s big independent oil company, Encana, said it too would take bitumen south—400,000 barrels a day—to Illinois and Texas for upgrading. It was far cheaper to retrofit a US refinery than to build a new upgrader in Alberta’s overheated economy, said Encana. So that was it. Chicago and Texas would get the jobs while Alberta would be the proverbial hewer of wood—and would be left with the cleanup when the mining was finished.

Peter Lougheed. (James May)

A normally disengaged electorate bristled with indignation. Those were Alberta jobs being shipped down the pipeline. Many recalled that a previous Conservative government had decided during the last boom that this just wouldn’t happen. In the Peter Lougheed era, keeping value-added jobs in Alberta was a cornerstone policy. The resentment spilled into angry letters to newspapers and sharp words on radio talk shows. “When will our government stand up for Albertans? There seems to be no concern that oil companies… are shipping jobs outside the province leaving us holding the infrastructure and environment bags,” wrote Ivan Suko in a letter to the Edmonton Journal.

The voices of protest grew so loud that the eight candidates running for leadership of the Conservative Party had to react. They talked tough for a few days that fall. “It concerns me when I hear companies planning to ship more of our raw resources for refining to the United States. I believe if you mine it here, you upgrade it here,” Jim Dinning said. Ed Stelmach put it this way: “Shipping raw bitumen was like scraping off the topsoil, selling it and then passing the farm on to the next generation. What value does it have?” Stelmach warned if the province didn’t keep the upgrading jobs here, we’d be buying refined petroleum from China instead of selling it into that vast market.

Such words were a distinct departure from the Klein script, which was adamant that government keep its nose out of business and leave decisions about value-added jobs to the market. To suggest the government should take action was a surprising echo of policies from the Lougheed era. This marked a significant shift in the political debate. It brought into play the Conservative party’s past, which Klein had spent the last 14 years dismissing, discrediting and dismantling.

From his Calgary law office, Peter Lougheed—the man who first led the Conservatives to power 35 years ago— had seen trouble coming. After returning to private life in 1984, Lougheed had kept a low profile for years. But it was fast becoming clear that Alberta’s abnormal growth, while a boon to the oil patch, was making life more expensive for everyone else and shortchanging Albertans on their royalties. “This disturbed me enough to want to comment,” explains Lougheed in an interview with Alberta Views.

So, in June 2006, Lougheed stepped into the public debate. He granted an interview to the Edmonton Journal’s veteran energy writer, Gordon Jaremko, in which he called for a review of the royalty rates. He noted that the special rate for new oil sands projects was set a decade ago, when oil prices were about a third of what they are today.

In July, Lougheed took a helicopter ride over the northeast oil sands to see the development for himself. “That’s when I came up with the review that this was a mess,” he says. “It just confirmed what I was uneasy about. All those projects going on at the same time… why did we not have orderly development?”

With so many projects going on at once, says Lougheed, the economy is overheated. Inflation is driving up costs in all sectors, including the cost of roads and other services provided by taxpayers. Huge cost overruns in oil sands projects are now a fact of life, meaning a reduced royalty take for Albertans— Shell’s Athabasca mining project, for example, started off with a $5.5-billion price tag that rose to more than $13-billion. oil sands projects pay a mere 1 per cent royalty until construction costs are paid off: the higher the capital costs, the longer Albertans have to wait to get their traditional share in royalties. “one of the clear implications of the cost overruns,” Lougheed notes, “is that the province, the people who own the resource, don’t start to get a royalty return until some significant time down the line.”

His concerns are on the mark. In spring 2006, the energy department confirmed the province’s share of oil and gas revenues was down—from 23 per cent in 2001 to 19 per cent in 2004. Alberta Energy arrived at that figure by comparing royalties collected by the government to industry’s net production revenues (not to the total value of oil and gas production, which would yield an even lower rate).

Also important, Lougheed says, “is the question of whether or not, from the province’s point of view, there should be the requirement that the upgrading and the jobs related to it occur within Alberta and not down in Illinois.”

Infrastructure is under pressure, too. Lougheed refers to the twinning of Highway 63 from Edmonton to Fort McMurray. “To what extent should the developers… be paying on matters such as twinning a road that is just for them?” he asks.

“These are major, major issues for the new premier.”

Peter Lougheed saw trouble coming. It was fast becoming clear that Alberta’s abnormal growth, while a boon to the oil patch, was making life more expensive for everyone else—and shortchanging Albertans on their royalties.

Lougheed’s stinging criticism had a ready audience in the season of our growing discontent. In June, as Klein returned from Washington, where he had been wooing even more investors, the city of Fort McMurray headed to the Energy & Utilities Board to call for a delay in the latest oil sands mega-project. Mayor Melissa Blake said the city couldn’t handle the population growth that would come with Suncor’s $7-billion Voyageur project, and needed time to build the roads, sewers and services to catch up. In August, taxpayers got a clear sign of how much this overheated economy was costing them: Finance Minister Shirley McClellan forked out a whopping $448-million in the third-quarter budget update to cover the cost of inflation on provincial projects.

In the conservative backrooms, MLAs and power brokers quietly conceded that Lougheed was right. Klein’s hands-off approach wasn’t working. Policies devised in the lean, mean 1990s were simply inadequate to address the problems Alberta was now facing. Tory insiders were annoyed, however, that Lougheed had chosen this delicate time—the party’s leadership transition—to point out so publicly the government’s weaknesses. In effect, Lougheed was leading the public debate, and Conservative candidates were forced to react.

But in coffee shops and at the last lakeside barbecues, Lougheed’s comments struck a chord. In many ways, Lougheed simply put the finger on the reasons for the unease people had been feeling for many months. He “was articulating what they felt but hadn’t quite figured out,” says University of Alberta political scientist Steve Patten.

“Steady Eddie” Stelmach was the surprise winner in the race to replace Klein. Will he revive any of Lougheed’s principles? (Photo Courtesy of the Government of Alberta)

There’s another reason Lougheed’s comments resonated. His decision to speak out made it okay to disagree with the Klein government—something rarely done in public, given Klein’s tendency to punish dissent. But here was someone beyond Klein’s reach, publicly challenging the government. Lougheed opened some space for a public discussion of crucial issues. “He was giving legitimacy to something a lot of people wanted to say, and that’s what made it exciting,” says Patten.

No wonder people looked back with some nostalgia at the Lougheed era. In the 1970s, when housing prices rose, Lougheed set up the Alberta Housing Corporation to bank land and help moderate prices. Klein dismantled AHC in the lean 1990s. Who needed it then? When housing got scarce and rents began rising sharply in 2005, the government’s solution this time was to change the rules to encourage the construction of more basement suites. In the early 1970s, Lougheed took on the oil companies and raised royalty rates. The Klein government quietly said there was no need, even when oil prices hit record highs. In the Lougheed era, an activist government rolled out an ambitious plan to modernize the province, establish a petrochemical industry and promote orderly urban development. Klein, after paying off the debt, boasted that he’d put the government on “auto-pilot.” He dismantled the planning commissions, leaving counties and cities at each other’s throats.

The policies of the Lougheed era may not have had all the right prescriptions for today’s problems, but people want more sophistication from their government. The wisdom of the past looks good. “As Alberta gets richer, it also gets poorer,” notes David Taras, political scientist at the University of Calgary. “For ordinary people, life is getting tougher, and that’s the worst kind of psychological letdown. There’s a swirling social resentment.’’

The evolution of the Alberta Energy Company is the best indication of how far the Klein government moved away from Lougheed’s vision. Set up by the Lougheed government in 1975, the company had a dual purpose, according to Allan Warrack, business professor at the University of Alberta and a Conservative cabinet minister when AEC was conceived. It was meant to provide the provincial government with a vehicle to build a more diversified economy from the finite energy resources, and to give individual Albertans a chance to share in the oil and gas boom. AEC was to be a diversified company, and would eventually invest in petrochemicals, forest products, coal and steel. The province put up half the start-up capital, $75-million, and sold another $75-million in shares to Albertans at $10 apiece. AEC was soon a successful, highly profitable company in which the people of Alberta had a hefty stake.

But its mission came to an abrupt end with the arrival of the Klein revolution. In April 1993, just months after Klein took over as premier, he and his cabinet decided to sell the remaining shares. A public stake in the oil patch had no place in this government’s shift to the right. AEC had to go.

As with so many privatizations in those early days, the Klein government gave little notice of this major policy change. It didn’t consult the Legislature or the public. In 1994, Gwyn Morgan was appointed chief executive officer. He quickly sold off the company’s diversified investments and concentrated on natural gas production. In 2002, AEC merged with PanCanadian Energy to form Encana, which saw its future in partnerships south of the border. Keeping value-added jobs in Alberta was not a priority. That’s just how the market works, shrugged the Klein government, failing to see the irony of AEC’s offspring sending Alberta jobs down the pipeline. “This is so far from what was intended,” says Warrack. “Talk about losing sight of the big picture.”

But the voices of Warrack and others were kept firmly on the outside as Klein continued his crusade to “re-engineer” government—which meant dismantling much of what Lougheed had built. The Heritage Fund remained as a potent symbol of the differences between then and now. Lougheed set it up to save a 30 per cent share of oil and gas royalties for future generations. Klein drained billions of dollars of investment income out of the fund, even as his government raked in surpluses.

David King, a cabinet minister in the Lougheed and Getty governments who ran against Ralph Klein for the leadership in 1992, says it was soon clear the gulf between the two factions of the party was simply too wide, and the Klein side had little interest in building bridges. In the Lougheed tradition, government was the agent of the community, while Klein took the Thatcherite view that there are only individuals. “Peter looked to the future to see what needed to be done and how to get there,” says King. Klein’s followers “are market fatalists: whatever the market delivers is what we must take, and that is the best Albertans can expect.”

By late November, three men were left standing in the Tory leadership race. Jim dinning carried the old-party pedigree (he had served as an executive assistant in the Lougheed government) and a public endorsement from Lougheed himself. Ted Morton, the right-winger with a firewall agenda and determined social conservatism, was the ideological heir to the Klein revolution; his victory would have been a clear repudiation of the Lougheed tradition. “Steady Eddie” Stelmach was hard to pin down—and he liked it that way.

Stelmach’s December victory will go down as one of the most remarkable political upsets in Alberta history. Riding a strong wave of northern support and a growing resentment against the party establishment in Calgary, Mr. Nice Guy came up the middle. Sitting slightly right of centre, Stelmach says his politics are grounded in practicality more than ideology. His leadership will determine whether Lougheed’s founding vision of province-building will survive, or whether the Klein ethos of “least government is best” will persist. So far the signals are decidedly mixed. While Stelmach is opposed to slowing the pace of oil sands development, his first major policy announcement was for a long-overdue review of royalty rates. This spring’s budget will provide a clearer picture.

With characteristic prudence, Lougheed declines to comment on Stelmach’s victory. Now that the leadership race is over, is Lougheed’s moment over too? He doesn’t appear ready to shrink back to the sidelines. With a runaway boom transforming the province and with political space finally opened up by Klein’s exit, Lougheed seems intent on remaining part of the public debate. In mid-January, he presented his ideas in a keynote speech to a large meeting of oil sands players in Calgary. It’s not clear how much influence he’ll have on the Stelmach regime, to which he has no personal ties. But his appeal has moved beyond the party.

The issues that Lougheed has raised, and which people instinctively understood in that uneasy season of 2006, will be in front of Stelmach for the rest of his term and during the next election. If the Tories do not reclaim those issues as their own, hungry opposition parties certainly will.

Sheila Pratt is an Edmonton Journal columnist and co-author of Running on Empty: Alberta after the Boom, about the 1970s oil boom.

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