That Alberta had only three premiers during my 35-year career in the oil and gas industry is a remarkable statement on the stability of the province’s politics. But that was one of the few stable things during much of that period. Energy prices, a key driver of provincial revenue, fluctuated wildly.
Peter Lougheed governed during the period of the 1970s oil shocks. As crude prices rose, investors returned to the sector. Then, as quickly as that optimism had risen, it was snatched away by the federal National Energy Program. The industry entered four years of purgatory until the Western Accord of 1985, which removed price controls on crude. Mr. Lougheed then handed off to his successor, Don Getty, only to see oil prices begin a precipitous collapse.
Mr. Getty was dealt a tough hand. Natural resource revenues plummeted from $4.3-billion to $1.6-billion in the first year of his tenure, leading to large deficits that were exacerbated by failed attempts to diversify the economy. By fiscal 1992-1993, as he made way for Ralph Klein, Alberta’s deficit was more than $3-billion, and its net debt was approaching $12-billion.
This was the financial legacy Mr. Klein inherited when he moved into the premier’s office. As a Calgarian, I had come to know him during his years as the city’s immensely popular mayor. But running the province – particularly one so deep in the red – was quite a different prospect. While the Getty government eschewed spending cuts in the hope that oil prices would come to the rescue, most Albertans had come to see that as a false hope.
Those of us running oil and gas companies knew we would have to hunker down, cut costs and focus on survival. Would the populist Mr. Klein follow through on his campaign rhetoric and do the same? I knew the answer was yes when, as vice-chairman of Calgary’s University Hospital Board, we were told that the our funding would drop by 20 per cent.
This was in line with cuts to other public sector spending, but we never believed that health care spending would, or could, be cut that much. It was in the implementation that I learned much about the leadership philosophy of Ralph Klein. Rather than a bureaucratic, top-down approach to the cuts, he charged hospital boards and administrators with the responsibility of determining how to best deliver health care for less.
In the Calgary’s hospital board’s case, we had to face the reality that two old and inefficient hospitals were much more costly to operate than existing newer, underutilized facilities. There was a great outcry against closing the 40-year-old Calgary General Hospital, but Mr. Klein held his ground and supported our decision. The demolition of the General signalled the new premier’s determination to bring Alberta back from the financial brink.
Mr. Klein’s approach to Alberta’s most important industry reflected the same treat-all-equally approach. In the past, each oil sands project had its own royalty terms, negotiated with the province. Under Mr. Klein, government officials consulted with the industry and implemented generic terms, over the objections of some producers. He also simplified the conventional oil and gas royalty regimes and tied royalty rates to productivity, unleashing the recovery of formerly uneconomic reserves. His government assiduously avoided special deals.
Ralph Klein’s philosophy was that government sets the rules and industry plays the game. This provided a vital component of stability in an industry subject to risks that include commodity prices, market access and cost escalation. These are lessons his successors would be wise to heed.