UPDATE 2-Alberta warns its oil woes may worsen deficit

Tue Feb 19, 2013 6:03pm EST

Related Topics

* 2012-13 deficit forecast at C$3.5 bln-C$4 bln

* Managers face salary freeze

* C$600 mln in savings identified

By Jeffrey Jones

CALGARY, Alberta, Feb 19 (Reuters) - Alberta's current-year deficit may balloon to as much as C$4 billion ($4 billion), more than four times the initial forecast, due to a deep discount on the Western Canadian province's oil and the strong Canadian dollar, the government said on Tuesday.

In its third-quarter update, the Conservative government of Premier Alison Redford said the 2012-13 deficit could be C$3.5 billion to C$4 billion, compared with an initial budget projection of C$886 million. The forecast has increased throughout this year.

Resource revenue was C$2.4 billion less than expected over the first nine months of this year, it said.

Redford has already warned that the next budget, due March 7, will be a tough one due to an expected C$6 billion shortfall in energy revenues because Alberta's oil sands-derived crude sells for much less than U.S. benchmark oil.

The government in the province of 3.8 million people derives nearly a third of its revenue from the energy sector in the form of royalties and land sales.

It made the first of what is expected to be several spending cuts, freezing public-sector managers' salaries for three years to save C$54 million.

It said it also identified C$600 million in savings throughout its ministries, with spending in the health and agriculture departments to take the biggest hits.

In recent months, a combination of growing production and limited pipeline space has pushed the value of Alberta's heavy crude to around $40 a barrel under West Texas Intermediate and created what Redford has termed the "bitumen bubble."

That puts the oil at less than half the price of a barrel of international benchmark Brent.

"As a landlocked province with limited access to markets for our oil resources, Alberta is continuing to face serious challenges to our bottom line," Finance Minister Doug Horner said in a statement. "The upcoming provincial budget focuses on making the tough but thoughtful decisions necessary to allow the province to continue to deliver on its priorities."

Redford is a staunch supporter of major pipeline proposals, such as TransCanada Corp's Keystone XL to U.S. markets and Enbridge Inc's Northern Gateway to the Pacific Coast, both of which are proposed partly to bring higher prices for Alberta's oil.

With those developments bogged down in the regulatory process, she has recently worked to get other Canadian premiers to support a multibillion-dollar proposal to move the crude to the country's east coast.

Meanwhile, opposition politicians and other critics have pilloried the Redford government for keeping Alberta's fortunes so closely tied to the swings in oil markets.

Despite the oil-price problems, 55,000 net jobs were created in 2012, a 2.7 percent increase and more than any other Canadian province, the government said.

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