Lessons from Norway for Alberta: Heritage Funds and fair comparisons

An online article talking about some lessons Alberta might learn from Norway, which has socked away a trillion dollars from its oil revenues, concerned the complainant, Peter Donovan. He thought the comparison was unfair and did not take into account a bunch of factors that challenged Alberta’s abilities to boost its Heritage Fund. The article was based on facts and focused on economic policy choices. There was no violation of policy.

COMPLAINT

You were concerned that an article published on the CBCNews.ca website comparing the Heritage Funds in Alberta and Norway, two oil-producing jurisdictions, was “not fair and was slanted to make Alberta look as bad as possible.” The article was entitled “Norway’s sovereign wealth holds lessons for Canada.”

You thought that it was not valid to compare the amount of money put aside in Norway, a trillion dollars, and Alberta, whose fund stands at 17 billion. You said an important fact was left out to explain the disparity:

They left out the fact that Alberta sends billions of stabilization dollars to the federal government while Norway keeps all of theirs.

After you heard from CBC management, you asked for a review and mentioned several other factors that made the comparison between the two governments unfair. You said that royalty structure is an important consideration, and that higher royalties would hold back resource development, as it did for some time in Saskatchewan. You also mentioned the fact that Norway’s oil comes from offshore rigs means the costs are very different, and since the costs of production vary, you need to look at the whole picture:

Having off shore oil with oil companies covering all infrastructure and people are flown in and out versus having to provide roads, bridges and all other infrastructure for land base[d] operations cost significantly more money to the province. Funds were not RAIDED as you stated they were used to provide desperately needed infrastructure to continue the development of the industry and provide services for the huge influx of workers and families.

You thought a lot more detail should have been given about how and where the money was actually spent.

And finally, you thought that the timing of the March 20, 2015 publication was very suspicious, and was slanted to influence the outcome of the Alberta provincial election.

MANAGEMENT RESPONSE

The Executive Producer of CBCNews.ca, Gary Graves, told you that he looked into your complaint of bias thoroughly to ensure the article met CBC News standards. He told you that he concluded it did, and explained why. He told you that while it might seem unfair to compare the two totals, the article was really looking at the choices made by Norway and Alberta, and to a lesser extent Saskatchewan, on how to assess royalties and then what to do with them.

He explained:

It is absolutely apt to recognize that their tax and royalty structures differ widely, as do the rules about using the money in the respective ‘oil’ or ‘heritage’ funds. But it’s the guiding principles of the latter – the royalty structure and the rules about using the money – that the article aimed to scrutinize. As Ms Ormiston wrote: the two governments “took different routes with vastly different results.”

The article is a reflection and comparison of what went into the funds and what came out. Alberta had a lower royalty rate and did not direct the full amount into a single fund; also, the collection of that amount has “petered out.”. . .

As stated in the article: “Alberta, for example, only put in 30 per cent of royalties. The funds were consistently raided by governments of the day, and in Alberta, contributions petered out altogether by 1987. The Saskatchewan fund was terminated in 1992.”

He also told you that there was a valid comparison between the two oil producers because the percentage of GDP represented by oil revenues, close to a quarter, is the same in both jurisdictions. Norway and Alberta also have similar population sizes.

He said there is an ongoing discussion in Alberta about the proper royalty revenue and that the new government will be reviewing the issue.

He concluded: “In the end, the reader is left to make their own conclusion as to which plan was the more ideologically and/or financially appropriate, but it’s clear which plan netted the most financial gain.”

REVIEW

Your main objection to this article was that it was unfair to compare the amounts in the Norwegian and Alberta funds, because there was lack of appropriate context as to why that might be the case, and it served to make the Alberta fund seem deficient. The second was that there was no discussion of the relative ways the oil is extracted, nor consideration to the whole question of royalty rates and how they affect the level of investment in the oil patch.

You are right the numbers were used to show that Alberta had not performed as well. But that is not a violation of CBC Journalistic Policy. The comparison was not given in a vacuum. There are many factors compared and discussed. And as Mr. Graves pointed out, the focus was not the dollar amounts, but the policies pursued over a long period of time by the two governments. CBC journalistic policy allows for analysis, based on facts. The Journalistic Standards and Practices describes the precept of impartiality this way:

We provide professional judgment based on facts and expertise. We do not promote any particular point of view on matters of public debate.

If the comparison was not flattering, that was partly the point – the piece was called lessons to be learned from Norway. The point made throughout the piece was not the dollar amount, it was about the policy choices made by successive Alberta governments after the Lougheed government set the fund up. There was a commitment to set aside a percentage of the royalties, regardless of the rates they were levied at. Successive governments made policy decisions to divert money into general revenues.

There are numerous other studies, one notably from the Fraser Institute and the other from the Frontier Centre for Public Policy, that make the very same points Ms. Ormiston made in her report. She tells me she read those reports to ensure that her analysis was fair and reasonable. That is what thinking journalists do. She based a lot of her story on the more recent work of Greg Poelzer. She said she wanted to assure herself, through multiple sources, that what she was saying was fair. The report by Prof. Poelzer, entitled “What Crisis? Global Lessons from Norway for Managing Energy-Based Economies”, was published in February this year in Commentary, a publication of the Macdonald-Laurier Institute. Prof. Poelzer is the Founding Director and Executive Chair of the University of Saskatchewan International Centre for Northern Governance and Development (ICNGD) and an associate professor of political studies at the university.

All the studies point to the same issues and while the recommendations they make vary in detail, the principles are the same. They are that resource-based economies like Alberta should commit to a percentage of profit to set aside and to do so no matter what. The studies point out that Alaska, for example, made it a constitutional amendment. There are different ideas about the way the funds are set up and how they are managed, but no matter what the ideological bent, all conclude they are a good idea and that governments should never spend any of the principle. A 2013 study from the Fraser Institute entitled “Reforming Alberta’s Heritage Fund: Lessons from Alaska and Norway concludes:

Alberta’s policymakers can learn much from the examples of Alaska and Norway. One obvious change in the Alberta fund would be the establishment of an explicit percentage of non-renewable resource revenues to be placed into the Heritage Fund, where they would be off-limits to current spending. Another change would be the creation of realistic institutional safeguards to make these rules effective. If Alberta’s policymakers moved even modestly in this direction, future Albertans would be far richer because of the changes.

The Poelzer paper and the two analyses from the Fraser Institute provide various numbers and scenarios had Alberta governments made different decisions. None of them reference transfer payments as a factor in this context.

The other issues you raise, the need to spend on infrastructure and to provide services to a growing population, are complex and may have driven some of the policy decisions. And you may be interested to know that in a 2008 article, “Restoring Peter Lougheed’s Original Vision”, author Michael Milke found:

The provincial government often increased spending beyond inflation and population growth. In inflation-adjusted per capita terms, Alberta’s program spending is projected to rise to $10,077 per person in 2009 from $9,396 in 2008. In 1995, per person spending was $6,789.

He also points out in other resource-based economies, like Alaska which has a fund, the legislature is restrained on the amount it can spend, because there is a constitutionally guaranteed obligation to put 25% of resource revenues into the “Alaska Permanent Fund.”

This piece was about how governments of resource-based economies deal with the nature of those economic realities. Other jurisdictions have apparently made different decisions with a greater success at maintaining some sort of heritage or resource-based fund. Presenting the relevant facts leaves others to draw a conclusion. In this case, that maybe Alberta did not make the best choices. There are facts in the piece that support that idea, and many more that the reporter researched to ensure that she was providing synthesis and analysis of the facts in a reasonable way. This does not violate CBC policy in any way.

As for your concern that this somehow was deliberately published so close to the Alberta election, here are some facts: The downturn in oil prices and its impact on Alberta’s economy was an ongoing story. The CBC News story was published March 20, 2015. The former premier, Jim Prentice, called the election April 7, 2015 and Albertans voted on May 5, 2015.

Esther Enkin
CBC Ombudsman