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Alberta rides wave of hope Finance minister eyes balanced budget 2 years ahead of schedule based on royalties, land sales; rivals, analysts tout uncertainties Gary Park For Petroleum News
The Alberta government, filling its coffers as it does with petrodollars, often seems to live in a different world from the rest of Canada.
Seldom more so than right now.
Amid the wreckage from the latest round of global economic upheaval, Alberta is operating in a detached world, some might say a fantasyland.
“I think there is a very real chance that at the end of this (fiscal) year we will be back in the black,” Finance Minister Lloyd Snelgrove told a room full of disbelieving reporters.
There was stunned silence for several seconds until he looked around and asked: “Any more questions?”
The return to a balanced budget was not scheduled to happen until at least March 2014 and the skeptics see no reason to believe that Alberta can beat that target by two years.
Even Snelgrove conceded he could not say with certainty that the budget would be “back in the black” by next March, allowing that Alberta is “not immune from a global contraction.”
What it comes down to is that Snelgrove is operating on a gut feeling, based on the province’s first quarter fiscal update that ended June 30 and indicated Alberta is on track to run a deficit of C$1.3 billion for fiscal 2011-12.
For sure, that’s a sharp drop from the initial budget forecast of a C$3.4 billion shortfall, but it’s still a deficit of more than a billion dollars.
Economic turmoil The prediction is already outdated by six weeks of economic turmoil around the world.
“The rest of the world would probably give me a lot of money if I could tell you … where the markets are going to settle,” Snelgrove said. “It’s really not appropriate for me to speculate on what some of the world economies may do.”
That from a man who had just felt comfortable speculating on where his own government’s budget would be in another seven months.
Alberta’s current fortunes are based on what may be only a fleeting windfall, notably a sharp increase in oil royalties and the sale of exploration rights, which have boosted government revenues by C$2.7 billion to a forecast C$38.3 billion, with non-renewable resources accounting for C$10.7 billion.
Snelgrove was forced to admit that his rosy outlook for a deficit-free year would be turned on its head if a global recession caused oil consumption to drop, dragging down prices from Alberta’s revised target of US$97.85 per barrel, up US$8.45 from the original budget.
Sharp criticism His projections drew sharp criticism from political opponents and analysts.
The Fraser Institute, a conservative think tank that is normally aligned with the Alberta government, said the province is placing too much hope on a return to an oil boom to balance its budget — a “high-risk strategy” that could replay mistakes of the 1980s and 1990s.
In a new report, the institute’s director of Alberta policy Mark Milke said Alberta lawmakers are saying the same things and making the same fundamental errors of politicians in previous decades.
Milke said it is time for Alberta to legislate a plan to balance its budget before it gets caught in a replay of 1981-86 when revenues rose by 49 percent, but program spending increase by 85 percent and 2004-09 when revenues rose by 38 percent and spending jumped 70 percent.
George Toriola of UBS securities said in a research note that “recent market activity has been very volatile, with significant uncertainties remaining, including the state of the global economy and the possibility for a global economic slowdown.”
UBS forecasts oil prices will average US$95 in 2011 and US$87 in 2012, but said that targets would change significantly if the economic woes of the United States and Europe took a turn for the worse.
Warren Lovely, a CIBC World Markets analyst, said Alberta’s revenue outlook “remains volatile,” although the province attracts “very strong interest from bond investors.”
Politics or stabilizing? Brian Mason, leader of the Alberta Democratic Party, rated Snelgrove’s fiscal update as a purely “pre-election” document (and) fire brigade budgeting.”
“They’re using obsolete data which precedes the latest market volatility to attempt to fool Albertans into thinking everything is all right before an election,” which he thinks could come as early as November after a Sept. 17 vote to choose a new premier to replace Ed Stelmach, who is stepping down after almost five years in office.
However, Gary Leach, executive director of the Small Explorers and Producers Association of Canada, said oil price benchmarks show signs of stabilizing, despite the European sovereign debt crisis and a continuing bleak outlook in the U.S., which could provide encouragement for further robust land sales.
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