Les Leyne: Ex-bureaucrat’s swan song raps gas royalties

Les Leyne mugshot genericIn the midst of all the rhetoric from political leaders about pricing natural gas, drilling for it and preparing to sell it overseas, someone at ground level has taken a definitive step on the issue.

They’ve written a detailed critique of how weak B.C.’s royalty regime is — after quitting their job in that field.

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A civil servant resigned his/her job last month and wrote an emphatic letter to Premier John Horgan about all the weaknesses in the programs the individual used to work on.

Lengthy portions of it were read into the record at the legislature this week by B.C. Green Leader Andrew Weaver, who didn’t disclose the writer’s identity. It was at the outset of debate on the new lower tax regime the NDP government created to secure a deal for a liquefied-natural-gas plant near Kitimat.

The individual’s main point is that B.C. is almost giving away natural gas to producers. The royalty regime has been watered down to the point where nearly $6 billion in potential revenue has been lost in the past 16 years, the letter said.

While the legislature debate is about the taxes B.C. is charging the LNG industry, the letter is about a more fundamental price that’s imposed. It’s the cost B.C. imposes on companies for extracting the Crown-owned natural resource, and a refinement called the deep-well credit that lowers that cost substantially.

It was invented to encourage companies to drill fewer, deeper wells, to be less intrusive. But with increased use of horizontal drilling, it became standard practice.

The writer said the industry would drill deep wells regardless of any credits because they are more efficient and productive. So the program doesn’t change the industry’s behaviour or produce any benefit.

The letter said 99 per cent of all wells drilled in the past four years now qualify for the credit.

It “represents an ongoing, eye-watering transfer of the provincial tax burden from natural-gas producers to the B.C. taxpayer,” said the departed bureaucrat.

Over the past several years, the government has issued more revenue-offsetting “deep credits” than it has collected in actual royalty revenue, the letter said.

“Put simply, the Crown is giving out $2 in available rebates for every $1 in royalty/tax payable.”

The cost of completing a deep well in the main formations has declined drastically in the past decade, but B.C. royalty discounts remain fixed, the letter said.

It rapped the “complex, mis-labelled” program for hiding the true cost of the subsidy.

“In my opinion, much of our royalty policy is not functioning as originally intended, leading to unwarranted ballooning of industry subsidy amounts. This expensive subsidy growth is hidden by complexity and less-than-transparent public-facing information.”

The letter also criticized a separate royalty-reduction program for short-changing and misleading the public.

The writer urged the government to simplify the regime and impose fixed, fair, monthly reference prices and rates.

Also noted was an inherent conflict of interest in the Energy Ministry, where it has become responsible for promoting and encouraging the industry while at the same time handling most of the responsibility for enforcing royalty policy.

The two roles should be segregated, said the writer.

“Consequently, there is no unbiased champion for the B.C. taxpayers’ rights at the policy table — and the costly consequences of this absence are hidden behind complexity.”

Just So You Know: Meanwhile, B.C. Liberals and Greens are feasting on the about-face the NDP is doing on LNG.

Weaver quoted former critic Michelle Mungall from four years ago on the Liberal tax regime: “That is ridiculous. That is a sellout. That is a sellout of this province. That is a sellout of this future.

“We have a big sellout of B.C., so somebody can stand up for a photo op around the next election.”

Today, she is energy minister, backing a new regime that reduces the take even more.

Weaver reported that people in Mungall’s hometown of Nelson are planning a memorial service to commemorate her credibility.

“It’s quite funny. I mean, it’s kind of weird, but they’re holding a funeral for the credibility of the minister.”

lleyne@timescolonist.com

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