Controversial refinery worth the cost: report
• A controversial $ 8.5- billion refinery under construction near Edmonton is worth the cost the government of Alberta is incurring to help finance its construction, a new report from the Conference Board of Canada says.
In the report published Monday, Conference Board economists studied whether the Sturgeon Refinery near Edmonton will be a profitable investment for the province, given the previous Progressive Conservative government agreed to support its construction by committing its own oil barrels — collected as royalties — to the project for 30 years and advanced money for the project in the form of subordinated debt.
“Is the government coming out ahead here? Yes,” Conference Board director of public policy Len Coad said in an interview. “They are getting a competitive rate of return on the money that they’ve invested directly.”
The 50,000-barrel-per-day Sturgeon Refinery was sharply criticized by economists and politicians when it was sanctioned, with the backing of the province’s Alberta Petroleum Marketing Commission and oil producer Canadian Natural Resources Ltd., at a cost of $8.5 billion.
Part of the reason for the project’s sky-high cost, compared with other refineries, is the refinery is being built with a carbon-capture- andstorage facility, designed to reduce the facility’s emissions.
Former provincial finance minister Ted Morton, for ex- ample, blasted the project in a report of his own in 2015, after costs had risen from $ 5.4 billion to $ 8.5 billion, and called it a “multi-billiondollar boondoggle with high risks for Alberta taxpayers.”
Through its c ommitments, the province will pay the interest on its debt plus $26 billion to Calgary-based North West Refining, which will operate the Sturgeon Refinery, to process its bitumen over the next 30 years.
In a report guaranteed to raise the controversy anew, Coad said, the provincial government will receive enough money to cover those costs through the sale of its bitumen, plus the return that North West Refining will pay the provincial government and the tax revenues it will pull in once the project is operational.
“They’re going to get something close to nine per cent,” he said.
Coad’s report, which was funded by North West Refining, is titled “Is There Value to Adding Value?”
“We think in this particular case the answer is ‘ yes’, Coad said when asked whether the government is making money. “We think the answer is ‘yes’ because of the way the risks have been allocated and financed.”
Coad noted the government and CNRL were able to secure loans at low interest rates.
The project’s ability to pay the Alberta government back for its costs is “only possible with very high quality credit counterparties,” he said.
The report predicts the project, once in operation in the fourth quarter of 2017, will add $ 934 million to the provincial gross domestic product, and contribute $76 million in taxes to the provincial government per year.
Assuming that its construction encourages more activity in the oilsands, the Conference Board predicts the refinery will help boost GDP by $ 2.2 billion and provincial tax revenues by $217 million.
IS THE GOVERNMENT COMING OUT AHEAD HERE? YES.