EDMONTON, Feb. 27, 2012 /CNW/ - The Board of Directors of AFNEC, including representatives of Teedrum Inc. and Grand Chiefs representing the majority of Alberta First Nations, today welcomes Alberta Energy Minister Ted Morton to attend the All Chiefs Summit representing all Alberta First Nations, occurring in Calgary February 28 to March 1.
We ask the Minister to use this opportunity to commit to support a third-party assessment of the economic viability of AFNEC and its related risks and benefits for the province and its taxpayers.
Further, we ask Minister Morton to provide a good-faith account of his refusal of AFNEC, including substantiating his claims that AFNEC is not economically viable and that it poses a risk to the province and its taxpayers. As outlined below, explanations provided to date do not stand up to reason.
While the Minister characterized AFNEC as being in the "very very early stage," the project concluded a conditional agreement in 2011 after approximately 30 government meetings and four years of development. It was accepted by the government as a suitable project to help meet the Conservative Party's long-standing goal of retaining the full value of bitumen resources.
At a meeting with Teedrum and Alberta Grand Chiefs on February 8, 2012 - following months of unresponsiveness by the government - Minister Morton provided a generally unsubstantiated refusal of AFNEC. Last week, the Minister, largely through his spokesperson, provided media a more thorough explanation of the government's position than was provided to Teedrum and Alberta's First Nations. It is still unsubstantiated.
The Minister's claim that AFNEC is not economically viable and a risk to Alberta tax payers is inconsistent with project negotiations and government due diligence to date, as well as the conditional agreement that would govern the next two years of activity, if approved.
On the point of economic viability, various third-party experts have confirmed AFNEC's viability, including PricewaterhouseCoopers on behalf of the Government of Canada, state agencies of China, and Engineers India Limited (EIL), representing the interests of the State Bank of India.
EIL, among the world's foremost experts in refinery development, conducted a Class 3 study of AFNEC. Class 3 estimates generally form the basis of budget authorization, appropriation and funding. They support long-term engineering, development plans and capital cost benchmarking. EIL's study confirmed AFNEC's economic viability and formed part of the basis of past government support for the project.
On the point of tax-payer risk, advancing AFNEC poses no risk to the Government of Alberta or residents of Alberta. AFNEC requires formalization of an existing draft conditional agreement established with the prior Conservative Party leadership. The agreement is six pages and lists 13 conditions for AFNEC - and not a single requirement for the province or its tax payers. If approved, the agreement would result in two years of continued project development and approximately $200 million invested into the province. AFNEC is willing to proceed with this investment despite the fact that the agreement contains no further liabilities from the government at this time.
Longer term, the project holds the potential of significant new revenue for Alberta, which will directly benefit tax payers. AFNEC has proven the following projected profitability, including favourable comparisons to the North West Upgrading (NWU) project previously approved by the government and offered for comparison by Minister Morton in commentary to media last week.
- Government officials with the Ministry of Energy have determined that AFNEC would produce significantly higher profitability than NWU.
- The minimum net present value (NPV) back to the Government of Alberta from the AFNEC project was set at $750 million, whereas NWU's NPV was set at only $250 million.
- Financial modeling, mutually agreed between the government and AFNEC representatives, suggested the AFNEC deal would deliver an NPV of greater than $2 billion for the province.
- The cumulative nominal profit for the Government of Alberta over 30 years was estimated at $19 Billion.
- The AFNEC project would be profitable for the 48 First Nations, AFNEC investors and the Government of Alberta.
Last week, Minister Morton and his spokesperson both said AFNEC received thorough consideration prior to refusal. However, Minister Morton also said that he inherited the proposal, wasn't in cabinet when discussions began, and that he was "not sure what was signed, or not, but it was in the very very early stage."
The board of AFNEC believes the combination of Minister Morton's comments suggest the project may not have received a good-faith assessment. His views not only fly in the face of his party's past commitments and third-party expertise, they are counter to top-ranking officials from his own ministry, including the following individuals who helped confirm the project's economic viability and any potential provincial liabilities before recommending it to the ministerial working group less than a year ago.
- Michael Ekelund, P.Eng, LLB, MBA, Assistant Deputy of Energy
- Peter Watson, P.Eng, former Deputy Minister of Energy
- Richard Masson, MBA, CFA, ICD.D, former Executive Director of Energy
- Tashfin Hauque, Btech (EE) MBA Manager of Business Issues and Evaluations for Energy
The board of AFNEC looks forward to Minister Morton's explanation of his reversal, his claims of tax-payer risk and his uncertainty about economic viability, and his understanding that refusing AFNEC entails refusing thousands of jobs, $100 billion in GDP, and a home-grown project designed to support the long-standing provincial imperative of value-added upgrading.
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