BCBusiness

34 BCBusiness september 2015 are soft; meanwhile, the main buyers— China, Japan, Taiwan, Korea and India— are forming a buyer's club, or block, to keep prices low. According to the Canadian Centre for Policy Alternatives ( CCPA), this puts the lie to the business case that arbitrage, or the assumption that B.C. has cheap supplies of natural gas and Asia doesn't, will underpin a B.C. LNG industry. At a glance, nego- tiations haven't gone in B.C.'s favour. Last October Finance Minister Mike de Jong announced an LNG income tax of 3.5 per cent that would rise to five per cent in 2037; that's notably down from a seven per cent tax that was originally touted in the 2013 budget, along with a proposed prosperity fund that would grow to $100 billion over 30 years. While there was no mention of the prosperity fund last fall, De Jong did offer up another incentive, in the form of a natural gas tax credit, that will enable LNG plant own- ers to reduce their corporate income tax rate from the cur- rent 11 per cent rate to eight per cent, which ministry officials say will help keep B.C.'s indus- try competitive. On May 20, the B.C. government signed an agreement with Petronas giv- ing certainty to taxes and long- term regulations around LNG. However, the proposed $36-billion proj- ect is far from a done deal: it still faces considerable First Nations opposition and environmental concerns over the plant's potential impact on fish habitat at the mouth of the Skeena River, near Prince Rupert. The CCPA's policy analyst Seth Klein argues that by allowing LNG operators to pay just 1.5 per cent in LNG tax, as long as capital investment is being deducted, taxpayers will in essence be on the hook for capital cost overruns. In the case of Australia's LNG sector, Klein points out, cost overruns have ranged from 15 per cent to 50 per cent, mean- ing it could be a dozen years or more before operators in B.C. pay the full tax rate. The playing field in contempo- rary B.C. is much different than it is in Scandinavia's petro powerhouse. Nor- way got in the LNG game early, when prices and demand were strong. B.C. lacks a state-owned entity, like Statoil, that can compete on the same terms as international players like Petronas. Nor does B.C., or Alberta, have a his- tory of bargaining hard with oil and gas companies. When Alberta, under then-premier Ed Stelmach, proposed higher royalties in 2010, the province quickly backed down from an increase in the face of industry protest. As for B.C., the finance ministry has reduced the LNG tax and offered corporate tax incentives before the first plant has even been built. N orway is not immune from the current oil-and-gas price slump, and its citizens are acutely aware of the country's dependence on oil and gas. However, even before drilling the first exploratory wells in the '60s, Norway's leaders established firm control over its oil-and-gas reserves and adopted a take-it-or-leave-it approach to taxation and regulation. Foreign petrol players balked at first but quickly came around, and today Norway's sovereign fund pro- vides each Norwegian citizen with a nest egg of approximately $200,000. "We have 6,700 billion Norwegian krone in the government bank account because of oil and gas," says Morten Bergan as we drive back into the tun- nel linking Melkoya Island to Norway's mainland. "We're lucky that we had some very visionary politicians back in the 1960s." ■ Norway is not immune from the current oil-and-gas price slump, and its citizens are acutely aware of the country's dependence on oil and gas. However, before drilling the first exploratory wells in the '60s, Norway's leaders established firm control over its oil-and-gas reserves and adopted a take- it-or-leave-it approach to taxation and regulation.

• Cover