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Oil sands cleanup may not be adequately funded

Current rules could allow companies to overestimate the value of their resources, Alberta's auditor general suggests.


July 7, 2015
by The Canadian Press

EDMONTON — Alberta’s auditor general says the province may not be requiring oil sands companies to save enough money to ensure their gigantic mines are cleaned up at the end of their life.

“If there isn’t an adequate program in place to ensure that financial security is provided by mine operators … mine sites may either not be reclaimed as intended or Albertans could be forced to pay the reclamation costs,” says a report released July 6 by Merwan Saher.

Saher says current rules could allow companies to overestimate the value of their resources. That allows them to delay increases to the amount of money they sock away to fund cleanup.

As well, Saher says the government hasn’t met its own targets when it comes to ensuring each operator is assessed a large enough amount to pay for reclamation. Only about one-quarter of the audits promised in 2011 have been completed.

“The level of verification activity has been insufficient,” says the report.

Alberta Environment Minister Shannon Phillips said the government agreed with Saher’s concerns and accepts his recommendations.

The Mine Financial Security Program was instituted in 2011 and currently holds security deposits from eight oil sands mines and 19 coal mines. The fund holds $1.6 billion to cover about $21 billion in eventual liabilities.

The program allows companies to keep remediation funds low until the mine has less than 15 years of life left, or until the company has less than three times as many assets as liabilities.

But current rules can help companies inflate the asset side of that equation. Saher also noted the rules don’t take into account long-term price swings such as the current downturn.

“The department has accepted the risk of not protecting against the risk of a broad based and rapid structural decline in the oilsands sector,” the report says.

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Saher told reporters any risk to Alberta taxpayers is long-term.

“We’re not concerned at this moment,” he said. “We just want to be sure that down the road, Albertans aren’t exposed to having to fork out sums that could have been identified by better calculations along the way.”

Saher also says there aren’t enough checks on how the base security deposit companies must put up is set.

Current rules allow companies to calculate their own cleanup liabilities, subject to government audit. Saher points out that while Alberta had promised eight such top-level audits by this time, only two have been conducted.

“There is presently no evidence that the level of audit activity is commensurate with the risks that exist,” the report says.

Phillips agreed the program needs a review.

“We need to analyze whether the asset calculation needs to be changed. We need to update this security program and conduct that detailed risk analysis.”

She promised the review would be conducted with the energy industry’s current low-price environment in mind.

Greg Stringham with the Canadian Association of Petroleum Producers said there are three ways that mining companies, including oilsands, are held to account.

Companies must pay a deposit, and that number grows as the mine nears the end of its life; the government signs off on each company’s reclamation plan and monitors it; and if a company is unable to meet its obligation, then the resource falls back to the government, he said.

“All three work in concert to ensure Albertans will not be liable for ongoing reclamation from at least the oil sands mines,” Stringham said.

Saher’s report also criticizes the government’s handling of Crown grazing leases, which it says allows ranchers to collect compensation payments from industry for damage to land they don’t own.

Examining about 10% of the province’s leases showed leaseholders had received about $2.7 million more in compensation from energy companies than they had paid to lease the land. Saher also points out those lease rates haven’t changed since 1994.

The report criticizes the management of Alberta’s Specified Gas Emitters Regulation, the rules under which the province’s carbon pricing system works. The report said there’s still no mechanism to ensure purchased carbon offsets actually reduce emissions.

It also says the province has failed to adequately implement its mental health strategy. Saher said there is still no action plan to integrate mental health care into overall patient care.

Alberta Health Services President Vicki Kaminski said the issue is important and promised improvement.

© 2015 The Canadian Press

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