After months of delay, the Alberta government has sold off $10.6 billion worth of crude-by-rail contracts to the private sector — and Premier Jason Kenney announced Tuesday the cost of divesting the contracts will come in $200 million lower than originally budgeted for.
The move extricates Alberta from a plan entered into by the previous Notley government just before the provincial election. In an effort to ship more oil out of the province amid ongoing pipeline capacity constraint and a widening price differential for Alberta crude, the NDP signed a series of contracts for the lease of 4,400 rail cars plus associated rail services. The goal was to eventually ship an additional 120,000 barrels per day out of the province by train.
The program was set to begin last July, but the Kenney government — which campaigned last spring on a pledge to halt the plan — immediately began trying to sell the contracts.
“We knew this was something the private sector would be willing to do and should be doing at its risk, not at the expense of taxpayers,” Kenney said Tuesday, adding the final cost of divesting the province of the contracts came in at $1.3 billion, $200 million less than the $1.5-billion provision the UCP budgeted for in October.
“We have been working with the private sector to sell those contracts and I’m pleased to announce that we have done so under very successful terms.”
In total, 19 contracts for rail cars, loading and unloading capacity, logistics and other services are being transferred to private companies. Kenney said no additional details will be made public at this point, citing confidentiality reasons.
Oil by rail on Wednesday February 27, 2019. Darren Makowichuk/PostmediaDarren Makowichuk /
In announcing its initial plan, the NDP had projected the government crude-by-rail program would cost $3.7 billion over three years (plus $6.7 billion for the cost of purchasing the crude, for a total of $10.6 billion). Kenney, who has long said the program was destined to be a money-losing project, said Tuesday the program would never have earned the $8.8 billion in incremental revenues he says the NDP expected it to make. He said that getting out of the contracts will save Alberta taxpayers half a billion dollars.
Last fall, the UCP government announced that oil producers who agree to ship additional barrels by rail would be allowed to increase their output levels above the current quotas in place under Alberta’s existing curtailment program. Those special production allowances — combined with the additional capacity represented by the rail contracts — means the industry could be shipping more than 500,000 barrels per day in the near future, said Ben Brunnen, vice-president with the Canadian Association of Petroleum Producers.
“Absolutely we could see us reaching that capacity sooner rather than later,” Brunnen said in an interview, adding the government’s move to relax curtailment quotas for producers who ship by rail had an immediate effect on volumes moving by train. “In December, we shipped 430,000 barrels per day. A record for our industry. So industry does move quickly — once they get hold of those contracts, they can mobilize on them.”
The UCP had originally indicated the divestment of the rail contracts would be concluded as early as last October. But Brunnen said industry understands it takes time to negotiate “some pretty complex agreements.”
“This did take longer than anticipated, but at the end of the day it’s a favourable result.”
The Canadian Taxpayers Federation applauded the Alberta government Tuesday for divesting from the rail car contracts.
“Taxpayers should have never been on the hook for rail car contracts, especially given the government debt problems,” said Franco Terrazzano, Alberta Director for the CTF. “Premier Jason Kenney deserves credit for limiting the damage done to taxpayers and saving money at a very crucial time.”
However, NDP finance critic Shannon Phillips said as long as the government is not providing details or documentation around the sale of the contracts, there is “zero evidence” that the UCP’s plan will save money in the long run.
“The crude-by-rail contracts that we executed at the time were profitable for the government when they were signed,” Phillips told reporters. “We had external advice and advice from public officials that proved the business case was sound, right up to the spring election.”
Twitter: @AmandaMsteph