By Jeffrey Jones
CALGARY, Alberta, March 7 Deeply discounted
prices for Alberta heavy crude oil have forced the Western
Canadian province into a sixth straight deficit and prompted the
once miserly government to borrow more than C$4 billion ($3.9
billion) to help fund badly needed roads, schools and hospitals,
its finance minister said on Thursday.
Reliance on debt markets for infrastructure needs marks a
radical shift for an energy-rich province that had shunned
large-scale borrowing for two decades, and shows how Alberta's
inability to move its oil sands-derived bitumen crude to more
lucrative export markets has emptied once-bulging coffers.
Alberta, under Progressive Conservative Premier Alison
Redford, finds itself in tricky financial straits as it leads
the country in economic growth and employment. The province is
the largest energy supplier to the United States.
"It's no overstatement to say that we find ourselves in a
unique point in time. At a time when we are enjoying a
relatively strong economy, we're also experiencing some of the
biggest fiscal challenges we've seen in awhile," Finance
Minister Doug Horner said.
The government, which has been warning for months of a
multibillion-dollar drop in revenues due to what it has termed
the "bitumen bubble," said it will have an overall 2013-14
budget shortfall of C$1.97 billion.
That compares with a previous fiscal year deficit of C$3.9
billion, though the government has radically changed the
presentation of its accounting to separate funds used for
operating from those used for capital spending.
From a solely operating standpoint, the deficit is C$451
million, compared with year-earlier C$1.4 billion, Horner said.
The total "cash requirement" is C$6.3 billion, he said.
Redford's government derives nearly a third of its revenues
from the energy sector. It has been increasingly hamstrung by
weak pricing for the more than 2 million barrels a day of
bitumen that companies produce.
Western Canada Select, a widely quoted heavy crude oil type,
has at times sold for more than $40 a barrel less than U.S.
benchmark crude in recent months, due to a combination of
growing production and tight pipeline capacity to move the
supplies to major markets such as the U.S. Gulf Coast. That
meant that two barrels were worth about the same as one of
international benchmark Brent oil, though prices have recently
With the new fiscal plan, the government breaks its pledge
to return to balanced books by the upcoming fiscal year starting
April 1. However, it lived up to more recent promises to eschew
new taxes and increase spending. Expenditures are budgeted at
C$38 billion, compared with C$38.4 billion for 2012-13.
That means the province's teachers and doctors, who have
been pushing for wage increases in contract talks, will see
none, Horner said.
About C$2 billion from Alberta's energy sustainability fund,
which is being renamed the "contingency fund," will be put
toward the budget shortfall, leaving just C$691 million in the
account. Two years ago, it had more than C$11 billion amassed
from energy revenues in the sustainability fund.
The government of the province of 3.8 million people will
borrow C$4.3 billion, departing from a debt-averse fiscal policy
that has been in place since former premier Ralph Klein began
his rule in 1993. Klein declared Alberta debt-free in July 2004.
It plans to spend C$15 million on infrastructure projects over
the next three years.
The move has angered more conservative critics of the
government, especially the opposition Wildrose Party, who have
complained that it is far too reliant on the highly cyclical
energy sector and has refused to cut spending to bring back a
By borrowing, Alberta can make use of its AAA credit rating
and low interest rates to keep servicing costs low and allow
costs to be spread over the life of assets. Horner said.
Total revenues for the year are pegged at C$38.6 billion, a
more than C$5.4 billion drop from the previous year. Horner
blamed a C$6.2 billion fall in resource revenue from the last
budget forecast for much of the decrease.
A lengthy delay in a regulatory decision in the United
States for the controversial Keystone XL pipeline to Texas from
Alberta has not helped matters for Alberta, and Redford has
spearheaded lobbying to convince the Obama administration to
give the project a green light. She is also pushing a national
energy strategy that includes a push to build new pipelines to
Canada's West, East and even northern regions.
For 2013-14, the government has assumed a price for the
crude of C$68.21 a barrel, compared with C$68.91 in the current
fiscal year and C$80.72 the year before. It has a projected a 35
percent increase in natural gas prices to C$3.07 a gigajoule.
Real gross domestic product for the current calendar year is
pegged at 2.9 percent versus 3.8 percent last year.
Meanwhile, Horner said the government will begin saving
nonrenewable resource revenues again next year. In 2014-15, the
rainy-day Heritage Savings Trust Fund will retain 30 percent of
net investment income, rising to 100 percent within two years.