‘A shortage of resolve to build’
Slow decisions are hurting growth
‘Social licence’ ... confuses public support with regulatory approval
M unicipal councillor Chuck Puchmayr doesn’t want to see British Columbia’s pristine waters and postcard scenery besmirched by pipelines and tankers. And as president of B.C.’s Lower Mainland Local Government Association, which represents 50% of the province’s population, 33 local governments and three regional districts, he passed a new resolution last week to oppose Kinder Morgan’s plan to expand the crude-carrying Trans Mountain pipeline system between Edmonton and Burnaby, B.C.
“The resolution is fairly clear: We don’t want this [project] at all,” Mr. Puchmayr said from the city of New Westminster, east of Vancouver. “The resolution also talks about future projects of this type to have more public involvement. At the moment there is no public discussion beyond legal filings.”
A spate of municipal objections to pipeline developments has added a fresh layer of uncertainty for companies already dealing with intense opposition from some First Nations and environmental groups.
But as companies with iron resolve lock horns with unyielding stakeholders, many observers believe Canada is losing out as projects of national importance are caught in an endless loop of consultation, opposition and procrastination.
“Our social decision-making process is so weak,” said Leo De Bever, chief executive of Alberta Investment Management Corp., the largest wealth fund in the country with assets under management of $63-billion. “We find it easier to pay somebody not to build something rather than actually build it. There has been a shortage of resolve to build projects.”
Even as hungrier, middleincome economies move quickly, Canada and other high-income countries believe they have the “luxury of temporizing,” Mr. De Bever said in an interview in Toronto.
Canadian provincial and federal regulatory regimes are often held out as examples of models of governance internationally, but in reality the slow decision-making process is hurting the country’s longterm future growth, he said.
As projects stall, Canadian producers have lost as much as $30-billion annually due to discounts on their blend of crude in the past few years. While spreads have narrowed over the past 12 months there is much more at stake.
If oil sands production reaches 3.8 million barrels per day in 2025, the bitumen’s contribution to Canadian GDP could nearly double, and a third more jobs could be expected, according to energy consultancy IHS CERA.
“Between 2012 and 2025, oil sands’ contribution to Canadian GDP could grow from $91-billion to $171-billion,” the IHS estimated in a report published this year. “This would be like adding an economy the size of Saskatchewan today to Canada by 2025. Oil sands could also add over one-quarter of a million more jobs, contributing to 753,000 jobs in Canada in 2025.”
Canada may not hit those targets if key projects continue to remain in an endless cycle of consultations.
“It is a fiercely competitive globalized world,” Peter Tertzakian, chief energy economist and managing director at ARC Financial Corp. told a Toronto business audience this week. “We as Canadians need to recognize we do not have a birthright to prosperity unless we start to compete.”
Canadians are used to dealing with a single market in the U.S. and still believe they can afford to take a very long time to make development decisions, says Dylan Jones, president of the Canada West Foundation.
“But the reality is that there are far more competitive and alternatives suppliers, most of whom are hungrier to make sales and are prepared to move more quickly,” Mr. Jones said, adding that “there will be very significant economic consequences” to delays in infrastructure projects.
A number of key oil infrastructure projects are caught in regulations and unable to secure a “social licence” to proceed from communities, environmental groups and First Nations.
In the past week, Ottawa has issued new regulations to tighten marine and pipeline safety to soothe community concerns, but a social licence remains elusive from many local communities.
“I am not in love with the phrase ‘social licence’,” Mr. Jones said. “The concept of social licence is unhelpful. First of all, as it suggests, it’s a box you can tick. Secondly, because it is confuses public support with regulatory approval.”
Last month, Kitimat residents rejected the Northern Gateway pipeline in a nonbuilding plebiscite after the regulator National Energy Board approved it. The federal government is expected to take a final decision on the project in June.
Meanwhile, the city of Burnaby, which is leading municipal opposition against Kinder Morgan, noted that “if Trans Mountain does not have social licence and consent from Burnaby, those services may not be made available.”
Mr. De Bever says the industry should share some of the blame as it has long viewed the issue of social licence primarily as a “PR exercise”.
Indeed, the industry and communities often appear to talk in different tongues. Engineering and technical companies that can competently address the legal and technical requirements of the most stringent regulators, frequently stumble when it comes to dealing with inquiries from the general public.
“In fairness there is really a radical change in the level of public interest around public infrastructure,” Mr. Jones said. “There has not been a lot of time for regulatory bodies and companies to respond to that.”
Trans Canada Corp. CEO Russ Girling, who is up against a legal challenge in Nebraska on the Keystone XL pipeline, said he was “caught off guard” by the opposition in the state, but argues that the company can’t do much against folks “who want to keep our resources in the ground.”
The company is spending more time talking to communities about its Energy East pipeline project which, if approved, would run from Alberta all the way to the East Coast.
“On Energy East, we have got there really early, even before we have drawn a line on the map,” Mr. Girling said at Bloomberg conference this week.
“[We are] sitting down with thousands of aboriginal communities across Canada and understanding what their concerns are.”
Indeed, it would be difficult to run roughshod over community concerns that often go beyond individual projects. They also involve convincing local leaders such as Mr. Puchmayr that his town of 15 square kilometres is part of a global value chain that feeds overseas markets and bring in revenues and investments for the wider economy.
Mr. De Bever is hopeful that deep-pocketed investors such as AIMCO are experimenting with ‘radical’ technologies that can make transportation much safer and ease community anxieties.
“From CO2 emissions, water to energy intensity — [they] can be addressed,” he said. “It is a matter of time, money and resolve.”