Wildrose calls Sturgeon Refinery a ‘boondoggle’ but unity partner PCAA launched project

North West Refining says Sturgeon Refinery fully operational in Q2 2018, processing tolls in line with 2013 estimates

“Never say ‘whoa!’ in a mud hole,” was one of folksy conservative premier Grant Devine’s favourite sayings while he was destroying Saskatchewan’s public treasury during the 1980s. Alberta Premier Rachel Notley finds herself in a similar situation with respect to the ballooning construction costs of the Sturgeon Refinery – unable to stop financial support even though her tractor is in the muck up to its axles – largely thanks to the conservative governments before her that negotiated the deal.

The project is in the news these days because of reports that the construction budget has soared another $800 million (from $8.5 billion) and the full start up date has been pushed back from late 2017 to the second quarter of 2018.

Northwest Refining, 50 per cent co-owner along with Calgary-based oil sands giant CNRL, says in a press release that the refinery is currently commissioning some units and “expects to be producing ultra-low sulphur diesel before the end of 2017.”

On Tuesday, Alberta Party Leader Greg Clark formally asked the Alberta Auditor General to review the government’s financial risk, which comes in the form of a 30-year guarantee to provide most of the refinery’s bitumen (received in lieu of royalty payments) and the payment of processing fees to refine the product, according to the Calgary Herald.

Former Progressive Conservative finance minister Ted Morton has joined the call for a review by the Auditor General and raised the question of when the government may have to start writing cheques even if the refinery is still not operational.

“I think that an immediate review by the Auditor General would be timely and valuable,” he said by email. “Specifically, Albertans deserve to know at what date the bond holders have to start being  paid or when the Government of Alberta has to start making toll payments – regardless of whether the upgrader is finished or not. Is it Oct. 1 of this year? Or June, 2018?”

Wildrose energy critic Drew Barnes weighed in Wednesday, arguing that “costs on this project are completely out of control” and “I support any review by the Auditor General into spending at the Sturgeon Refinery, as this situation has become a massive boondoggle for the people of this province.”

Barnes notes that the government has already “fronted $324 million in loans for the project through the Alberta Petroleum Marketing Commission and have paid $124 million for the Alberta Carbon Trunk Line.”

“The government has gone from throwing good money after bad, to throwing bad money after bad,” Barnes said. “We’ve witnessed the costs on this project far, far exceed initial projections, and government try and increase its borrowing to continue pumping money into it. This is an investment that’s gone horribly wrong, and Albertans deserve better.”

Albertans do deserve better. Including an Official Opposition with a sense of irony.

The Sturgeon refinery project was the brainchild of the Progressive Conservatives – the very party the Wildrose has been negotiating with to create the United Conservative Party.

According to Morton, who wrote a 2015 School of Public Policy paper on the project from an insider’s perspective, he opposed the investment but was over-ruled in 2010 by then Premier Ed Stelmach and Deputy Premier Doug Horner. Sturgeon was budgeted at $5.7 billion, he says, and considered a low-risk opportunity to create jobs and keep value-added bitumen refining in Alberta.

Morton claims in his paper that, “NWU fits the larger and longer pattern of failed ‘forced-growth’ diversification initiatives in Alberta and other provinces.”

If the unification side wins in the July 22 vote, the new party will presumably include former PC politicians and members who supported Sturgeon, which Barnes and the Wildrose are now calling a “boondoggle.”

Industry cheerleader Barnes may want to watch his apocalyptic language.

“Those who suggest that this project is not profitable must engage the facts and not just make assumptions,” Northwest Refining said in its release. The company stands by the Conference Board of Canada economic impacts report it commissioned, which estimates that the Alberta government will earn “a minimum of $88 million per year” and the Alberta economy benefited from over 10,000 jobs created in the Edmonton-area during construction.

Northwest also provided an interesting summary of the project’s financing:

At the time that construction was started on this project in late 2013, the official cost estimate to complete construction was approximately $8.5 billion. The project is now 96 per cent complete. Since 2013, some costs have escalated due to a higher than expected USD/CAD exchange rate, minor scope changes, and productivity challenges. Although regrettable, this is not inconsistent with the experience of other large capital projects. But, it is important to note these capital cost increases have also been offset by approximately $1 billion in cost savings resulting from lower financing costs. Because of these savings, the actual toll payable for refining the province’s bitumen will be in line with the 2013 estimate.

Clark has done the right and reasonable thing by asking the Auditor General to review the government’s financial exposure rather than attacking the company for short-term political gain.

How do Albertans know if Sturgeon Refinery is a boondoggle or not without a thorough view by the AG?

Notley has no choice now but to mash the tractor’s gas pedal and hope Northwest Refining can meet its latest projections and then run the refinery at a profit.

With any luck, the government can crawl out of a mud hole that is entirely the making of one of the two Alberta conservative political parties.