Resource royalties: Re-examine the status quo

By John W. Warnock
The Leader-Post
October 3, 2011

There has been discussion recently about the rate of return the people of Saskatchewan receive for the extraction and sale of our non-renewable natural resources.

Unfortunately, our governments have not informed the general public on this issue. How does this province compare to other political jurisdictions that are dependent on resource extraction?

Commonly, the term "royalties" is used to describe the return to the owners of the resources, but all political jurisdictions use a variety of policy tools.

We can get a general picture of our situation by looking at the total effective rate of return in a few mining jurisdictions, using a model prepared by the World Bank:

Sweden ........ 28 per cent

Chile ............ 36 per cent

Argentina ... 40 per cent

China ....... 41.7 per cent

South Africa .45 per cent

Philippines .45.3 per cent

Kazakstan .46.1 per cent

Tanzania .. 47.8 per cent

Mexico...... 49.9 per cent

Indonesia . 52.2 per cent

Uzbekistan . 62.9 per cent

So does Saskatchewan compare? The provincial Ministry of Energy and Resources reports that over the past 10 years the total of royalties and taxes on the potash industry have averaged 10.8 per cent of revenues. For the uranium industry, the return to the public has been 9.8 per cent of revenues.

The most valuable mineral in today's economy is petroleum. Around the world, since achieving independence from their colonial masters, the major producing countries raised their royalty rates and then created state-owned national oil companies to enable the capture of all the profits from extraction and use.

Today, 90 per cent of conventional oil reserves are found in countries where national oil companies have complete control of the industry. In many of these countries, privately-owned independent oil companies operate on a joint-venture basis.

We can get an idea of the general state of the industry by looking at the share of oil revenues collected by governments in several jurisdictions, as reported by the U.S. Government Accountability Office and cited by Andrew Nikiforuk in his recent book, Tar Sands.

Venezuela ..... 89 per cent

Nigeria .......... 77 per cent

Norway ......... 76 per cent

Angola .......... 73 per cent

Ecuador ........ 61 per cent

Louisiana ...... 57 per cent

California..... 53 per cent

U.K. ............... 52 per cent

Wyoming ....... 52 per cent

Alberta ......... 39 per cent

Again, how does Saskatchewan compare? The Ministry of Energy and Resources reports that over the past 10 years all returns to the province from the extraction of crude oil have averaged 15.2 per cent of industry revenues.

The present royalty structure was set by the NDP governments of Roy Romanow and Lorne Calvert.

This apparently low level of return to the people of the province was not always the case. During the NDP government headed by Allan Blakeney (1971-82) oil royalties and taxes were raised to over 50 per cent of industry revenues. The expansion of Crown corporations in the area of resource extraction by the Blakeney government proved that the people of Saskatchewan are just as capable as the people of Kazakstan.

A notable success was the development of the natural gas industry. Under the CCF government of T.C. Douglas, ownership and control of the industry was given to the Saskatchewan Power Corp.

Like all other state enterprises in the field, it searched the geophysical data, bid and acquired land claims to develop resources, paid their fees and royalties to the province, and hired service companies to develop the resource. It acquired large reserves in Alberta.

This was deemed a prudent policy, given our climate and the necessity of providing energy to homeowners and industries in the province.

This highly successful business, owned and operated by the people of the province, was privatized by the Romanow and Calvert governments.

Our governments, political parties and the transnational corporations that dominate our resource sector might be satisfied with the status quo.

But at the very least, the general public has a right to a complete and open examination of this vital sector of our economy.

John W. Warnock is retired from teaching political economy and sociology at the University of Regina.