Of the billions of dollars of taxpayer money injected into the oil patch since the COVID-19 crisis began, this latest tranche is notable by what’s absent: any mention of the oil patch.
It’s clear that the federal Liberal government has no stomach for another bailout package going to support the fossil fuel industry exclusively. This program is making credit backstops available to all large companies.
Still, there’s enough subtext in the announcement to see that big oil companies are key among those targeted. Tapping the funds is conditional on toeing the line on federal climate goals, as well as limiting executive compensation and payouts to shareholders. These are all thorny issues for the sector, and will come roaring back into the public consciousness when recovery takes hold.
The main point, saving companies, and hence jobs, from debt-induced failure is noble and in fact necessary in such a wicked economic slump. The energy industry has been hit hard by the collapse in demand for its products, as well as the plunge in oil prices. Both have hindered the ability of companies to stay onside of their credit obligations.
But, like the previous federal and provincial supports, a big problem remains that taxpayers are taking on the liabilities – stepping in where banks may fear to tread – and getting no equity and little recourse should corporate plans go horribly wrong. That’s a risk level no one else is prepared to shoulder.
The new Large Employer Emergency Financing Facility, announced by Finance Minister Bill Morneau on Monday, will provide bridge financing to big companies that aren’t able to secure it with their own banks. Details are still scarce, but we know that the money can’t be used by companies to escape from pre-existing insolvency or those requiring restructuring to stay afloat. It also can’t be used by tax cheats.
The other caveat is that those that use the financing must provide details of how their operations are supporting sustainability and national climate goals. This has merit, and, actually, is something that most large energy producers already do in the form of annual reports. It also could stave off at least some criticism among a large part of the Liberal voting base who worry that their money is just propping up a dirty industry.
How much money is ultimately available is still unknown, but it comes on top of $2.45-billion that Ottawa has already earmarked for the cleanup of orphan and inactive wells and methane reduction. The government has also extended similar credit support for the small and mid-size oil producers. They were deemed the most vulnerable to cash crunches in the downward spiral that has wiped out much of their share value.
For Albertans, the contribution is even higher. Premier Jason Kenney’s government has shelled out tens of millions of dollars in environmental cleanup costs with a loan to the Orphan Well Association, and has waived taxes and regulatory levies to keep the oil patch afloat over the past year.
Two weeks ago, Cenovus Energy Inc. chief executive Alex Pourbaix called on the federal government to hurry up with credit supports that will help carry larger companies through the downturn. His rationale was that the country will need the industry’s revenue to help the national economy recover from the collapse.
Mr. Pourbaix echoed what others, including Mr. Kenney, have said – that this taxpayer money is dwarfed by the $13.7-billion that the federal and Ontario governments contributed to the bailouts of Chrysler Group LLC and General Motors Co. in 2009. After all, the oil patch is a much bigger contributor to Canadian gross domestic product, he said.
This is true, but Canada did win important concessions for its lifelines to the auto sector during the financial crisis, including equity stakes and commitments that manufacturing capacity would remain in the country. With that, came seats for government representatives on the boards of directors to steward the public interest.
This time around, taxpayers are shouldering hefty financial and environmental risks on behalf of the energy industry, and are being offered little in the way of opportunity to participate in its eventual recovery.
Canadians should get some form of ownership in exchange for their largesse, a nest egg for later when strained public finances are the big national worry.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.