Month: November 2018

Second in a three-part series on how Canada’s heavy regulatory burden is choking competitiveness.

CALGARY – Enerplus Corp. chief executive Ian Dundas has not “written off” Canada as a place to do business, but he is not planning to shift spending back to the country from the U.S. anytime soon.

“We’ve transitioned our business into the U.S. — dramatically transitioned it,” he said. “This year and next, we will spend 90 per cent of our capital in the United States.”

Dundas said Enerplus’s capital budget was once more weighted toward Canada, but the company in 2015 started shifting its capital to the U.S.

“When you hear ‘capital,’ the synonym for that is ‘jobs,’” he said, adding that Enerplus has staffed up considerably in the U.S. in recent years. Annual disclosures show the company employed 139 people in the U.S., compared with 265 people in Canada at the end of last year.

Dundas and other oil and gas executives point out that U.S. regulatory processes are more predictable and streamlined, its regulations change less frequently and it takes less time to get regulatory approvals to develop a resource, which has led the industry to become increasingly critical about Canada as a jurisdiction to drill for oil and gas and less likely to invest here.

They also point to reports such as the World Economic Forum’s Global Competitiveness Index ranking, which was updated on Oct. 16. Canada fell two places and is now the 12th most competitive jurisdiction in the world.

The WEF ranked the U.S. first overall, which oil and gas executives say is significant because it has become Canada’s main competitor for investment dollars in the energy industry — a trend that Dundas called a “massive change that changed everything.”

Capital spending in the U.S. oil and gas sector rose 38 per cent to $120 billion last year, Reynold Tetzlaff, PricewaterhouseCoopers LLP national energy leader, said in an email, citing data compiled by the Fraser Institute.

“The U.S. is more competitive in the oil and gas market today,” he said.

Now, Canadian-domiciled oil and gas producers are getting more vocal about the issue.

The U.S. is more competitive in the oil and gas market today

Reynold Tetzlaff, PricewaterhouseCoopers LLP national energy leader

“There are four key challenges facing the oil and natural gas industry: market access, regulatory effectiveness, cost structure and fiscal competitiveness,” Canadian Natural Resources Ltd. said in an emailed statement.

CNRL is Canada’s largest upstream oil and gas producer with daily production exceeding one million barrels per day, or more than 20 per cent of the country’s total production.

“It is imperative that we maintain our high regulatory and environmental standards while also overcoming these challenges,” the company said.

Federal Finance Minister Bill Morneau has said Ottawa is tracking Canadian business competitiveness and regulatory burdens relative to the U.S., which also has the advantage of getting recent major tax cuts. But his government has not announced any changes yet.

As it stands, the energy industry blames a combination of provincial and federal governments for what they call “duplicative” and incremental regulations that hurt business competitiveness without improving environmental stewardship.

This month, staff from Environment and Climate Change Minister Catherine McKenna’s office flew to Calgary to meet with chief executives from major pipeline and oilsands companies and listen to criticism about Bill C-69, which would reorganize the National Energy Board and establish a new assessment agency, to die on the order paper.

Caroline Theriault, an Environment and Climate Change spokesperson, said the government will continue to meet with stakeholders in the energy sector and that “Bill C-69 is supported by many in the resource sector across the country.”

But industry executives say the legislation will further stymie investment in the resource sector by introducing new and unpredictable regulatory reviews, and prevent new pipelines from being built in the country. They have repeatedly stated they want Bill C-69, currently before the Senate, to die on the order paper.

In addition to new pipelines, PwC’s Tetzlaff said the energy industry needs to see a Canadian response to the U.S.’s tax reforms and efforts to streamline the regulatory processes.

“We need to utilize all of these components to regain our edge as an energy leader,” he said.

It already takes weeks longer to get well licences in Alberta than in places such as Texas, according to a report published in September by the Canadian Association of Petroleum Producers, the industry’s largest advocacy group.

The report noted that oil and gas companies wait between 79 and 119 days for a routine well licence in Alberta, compared to between 30 and 60 days in Texas. For non-routine well applications, or applications for which “statements of concern” are filed by interveners, the timelines in Texas can be up to 190 days shorter.

The report was particularly critical of the regulatory process in Alberta, where it can take up to six years to get approval for a steam-based oilsands project.

“What we should strive for is a streamlined and efficient regulatory system that maintains the standards that Canadians expect,” CAPP chief executive Tim McMillan said.

He said CAPP and several individual companies have been meeting with politicians about the issue for years, but “over the last few years, it has gotten worse.”

For example, McMillan noted Mick Mulvaney, one of U.S. President Donald Trump’s cabinet members and the director of the Office of Management and Budget, has asked all other U.S. federal government departments to put forward plans to streamline their regulatory processes.

“You see the results,” he said. “Capital growth in the U.S. oil and gas industry is up almost 40 per cent this year. In Canada, it is declining.”

The Alberta Energy Regulator, which oversees oil and gas activity in the province, disagreed with some of the timelines CAPP highlighted in its report.

“The AER posts estimated application processing times on its website and meets the targets more than 90 per cent of the time,” spokesperson Monica Hermary said in an email.

Capital growth in the U.S. oil and gas industry is up almost 40 per cent this year. In Canada, it is declining

Tim McMillan, CAPP CEO

She added that longer timelines could arise from complex development or factors that are outside the regulator’s control, “including if the application is incomplete or if stakeholder consultation requirements have not been met.”

Hermary said the AER is working with the energy industry, including CAPP, “to gather input on how to make the regulatory system more efficient and the areas we need to focus on that will make a positive difference.”

But for producers that have already shifted their capital spending to the U.S., it will be difficult to draw them back without major changes.

Enerplus’ Dundas said the company has now developed assets in the U.S. as a base for future growth rather than in Canada.

“Our assets today in Canada do not support a shift back,” he said.

• Email: gmorgan@nationalpost.com | Twitter: geoffreymorgan

When news broke earlier this year that the accounts of maybe 600,000 Canadian Facebook users had been compromised, Ottawa swung into action to shut down this alarming example of creeping surveillance capitalism. Scott Brison, then acting minister of democratic institutions, said his government had dispatched Canada’s national spy agency to make sure the privacy of Canadians had not been compromised. “Social media platforms have a responsibility to protect the privacy and personal data of citizens,” said Brison.

But when news broke last week that Statistics Canada wants to expand its inventory of data on Canadians by collecting real hard-core personal information on the banking activities of 500,000 Canadians annually, the Trudeau government was suddenly not at all concerned about privacy breaches or even the principle of privacy protection. Instead of waving a red flag over the prospect that StatCan would end up with computers full of private financial details on millions of citizens, Prime Minister Justin Trudeau brushed off privacy concerns, which he implied take a back seat to the government’s need for “high quality and timely data.” Such data, he said, are “critical to ensuring government programs remain relevant and effective for Canadians.”

Spoken like a true central planner and enthusiastic purveyor of policy-based evidence making. Nobody seems to know why StatCan wants to begin collecting personal banking information on individual Canadians, information that Canada’s bankers are rightly reluctant to provide. In the all-new era of fintech and blockchain, the great concern among regulators is how data privacy will be protected. At StatCan, the concern is: “How do we get our hands on the data?”

An official tweet Wednesday from Anil Arora, Chief Statistician of Canada, failed to clarify the agency’s motives. He called the bank data collection plan a “pilot project.” He said more than 75 per cent of Canadian consumer purchases are conducted online and that StatCan “has to have access to these data in order to provide all Canadians with the timely and quality statistics they need in areas such as housing and debt and the impacts of transitioning to a GIG economy.”

The gig economy? Is that an economic phenomenon big enough to justify the  accumulation of personal banking transactions of most of the population? As for the consumer purchases of Canadians, online or otherwise, credit card data might be more informative, although one hopes StatCan has not gone after that data as well as the credit bureau information it has surprisingly already collected.

StatCan’s assurances on privacy protection are not all that reassuring. In a document dated October 2018 — obtained by David Akin at Global News— the chief statistician describes his agency’s “Generic Privacy Impact Assessment related to the acquisition of financial transactions information.” It is clear that the names of millions of Canadians, their bank account numbers and transactions, their bill payments and personal activities, will be collected and stored in government computers. StatCan is not merely getting useful generic data on the spending and banking habits of Canadians, it is collecting the actual spending and banking habits and names of individual Canadians.

It is one thing to collect and analyze statistics based on anonymous data. It is quite another to “require” — Arora’s word — that the banks provide “individual payments and income history.” Even though billions of bits of private, individual and personal information will be collected, StatCan says that, “Under no circumstances will the personal information obtained from financial institutions be used to perform credit, expenditure or income checks on individual Canadians.” He said none of the resulting statistical reports will include any personal data.

That’s not good enough.

There are two larger issues here, aside from the obvious breach of individual privacy without permission and the fact that detailed day-to-day banking information on Canadians is a much more deeply personal than daily Facebook activities.

The first issue is security. StatCan says billions of bits of personal data will be collected using a “secure file transfer protocol” and stored behind “network firewall and access rules” with “functional and current anti-virus software.” Only people with “work-related need” will have access. All very nice, but we’ve heard all this before from any number of corporations and government agencies that have suffered data breaches.

It is one thing to collect and analyze statistics based on anonymous data. It is quite another to ‘require’ that the banks provide ‘individual payments and income history’

The second and more important issue is the use to which the data will be put, not just today but in the future. StatCan itself has in the past shown a willingness to jump aboard political trends. It is famous for cranking out research on the 1% wealth gap, income distribution and pay inequities. It jumped aboard the marijuana bandwagon with a “Cannabis Stats Hub” which seemed to be promoting a booming industry and a Liberal agenda.

StatCan’s explanation of its current objectives are already vague. But a decade or two from now, some new interventionist government with bold planning ideas and a fresh ideological agenda could decide to dig deeper into the personal banking data storehouse.

Politics is filled with planners and interventionists whose need for more data is universal and never-ending. In future, current privacy rules — such as they are — could easily be overthrown in the name of the public interest.

In this internet era of Big Data, there are constant warnings about the risks of “surveillance capitalism” through the likes of Google and Facebook. The greater risk has always been surveillance statism.

Kudos to Canada’s Privacy Commissioner Daniel Therrien for launching an investigation into Statistics Canada’s bank data raid.

Third in a three-part series on how Canada’s heavy regulatory burden is choking competitiveness.

My first idea for a column on domestic protectionism and over-regulation was to detail all the ridiculous ways that Canada’s federation makes life impossible for executives. For example, an employer with a 10-province and three-territory strategy would have to order eight different first-aid kits to stay on the right side of various labour laws. There’s plenty more where that came from. Almost half of the 345-page Canadian Free Trade Agreement that was agreed to last year is devoted to exemptions.

But that take would have been inaccurate. Life isn’t impossible

for Canadian companies and the international firms that do business here, it’s just frustrating and inefficient. Canadian corporations earned more than $100 billion in the second quarter, an eight per cent increase from a year earlier. Capitalism lives, despite the best efforts of 14 sets of rule makers to strangle it.

Make no mistake: the regulatory thicket between the provinces and territories is holding us back. A Senate Banking Committee report in 2016 said internal free trade would increase gross domestic product by as much as $130 billion, and by at least $50 billion. However, that is an “opportunity cost,” so it doesn’t show up in hard data, with the possible exception of Canada’s notoriously woeful productivity numbers.

On the other hand, provincial finance ministers know exactly how much revenue they can expect from their various monopoly companies and regulatory fees. “The revenue aspect is an important factor,” Joseph Day, the New Brunswick senator who co-wrote the banking committee’s internal-trade report, said in an interview Friday.

The result: inertia.

Canada may have dropped to No. 22 on the World Bank’s annual Ease of Doing Business rankings in 2018, but that’s still higher than Germany (No. 23), and there is probably little risk of significant capital flight to the former Soviet republic of Georgia (No. 6) or Lithuania (No. 14).

So executives cope. Fresenius Kabi, a German pharmaceutical company, waited six months as various approvers looked over the company’s new $11-million compounding facility in Mississauga, Ont. Still, Matthew Rotenberg, chief executive of the company’s Canadian unit, said he didn’t mind.

“Mississauga walked us through it,” he said in an interview this week. “On balance, (the process) met our expectations.”

Nor was Rotenberg bothered by having to satisfy the requirements of 10 provinces. The new plant was built in anticipation of demand from hospitals that would rather outsource their custom medicine preparations than upgrade to comply with new national standards.

The provinces, of course, will adapt the federal mandate to their own circumstances and at varying speeds. I would find that frustrating, but for Fresenius Kabi, it’s just the way things are. “Everyone is looking ahead,” Rotenberg said of his various regulators.

The unwillingness of executives to join the debate over regulation makes it hard to launch a proper campaign for change.

The free-market think tanks behind the One Market, One Country campaign sponsored a conference in Ottawa on Oct. 31 to focus attention on the issue. The quality of the debate was excellent, but no actual job creators took part. Their absence meant the discussion lacked authenticity.

The head of the British Columbia wine lobby cracked a good joke about how he would have liked to have brought some good bottles from the Okanagan Valley, but doing so would have risked jail time. The joke would have been even funnier if Canadian taxpayers weren’t currently on the hook for the defence of B.C.’s possible discrimination of U.S. wine imports at the World Trade Organization.

The unwillingness of executives to join the debate over regulation makes it hard to launch a proper campaign for change

The business lobbies talk a good game on internal-trade barriers, but they often are as conflicted as the politicians, because some of their members benefit from local barriers.

To be sure, the leaders of the oilpatch have become extremely vocal about Canada’s inability to build pipelines, but they waited until the situation became extreme before speaking out. As we were reminded last summer when entrepreneurs freaked out over losing the right to sprinkle their incomes among family members, most executives only engage after they’ve lost something.

That’s why a Bloomberg News interview this week with Paul Desmarais III stood out. The scion of the family behind Power Corp. said financial technology companies in Canada have to deal with too many regulators that are too stretched to deliver timely decisions. The risk is that dozens of companies with lots of potential never get off the ground.

“A six-month delay for a certain fintech can mean life and death,” said Desmarais, who oversees Power’s investments in the emerging industry, which include a stake in robo-adviser Wealthsimple Financial Inc.

Politicians say they are motivated to do something about internal trade.

The mandate letter that Prime Minister Justin Trudeau wrote for Dominic Leblanc orders his new intergovernmental affairs minister to “collaborate with provinces and territories to eliminate barriers to trade between each other, and work toward a stronger, more integrated Canadian economy.”

Trudeau also plans to assemble the premiers before the end of the year to work on freer trade within the federation. There appears to be support for the idea from a couple of the prime minister’s harshest critics, Doug Ford and Scott Moe, the Conservative premiers of Ontario and Saskatchewan, respectively, who said on Oct. 29 that they would seek to eliminate rules that impede trade between their two provinces.

“I hear from business leaders that this is one of the primary obstacles to attracting new investment and jobs to our country,” Ford said.

… Trudeau and the premiers likely would agree to erase barriers to the exchange of beer and wine. That would be a start. The risk is that it also would be an ending

Those business leaders should follow the lead of Desmarais and speak for themselves.

Darrell Dexter, the former New Democratic premier of Nova Scotia, told the One Country, One Market conference that Trudeau and the premiers likely would agree to erase barriers to the exchange of beer and wine. That would be a start. The risk is that it also would be an ending.

Day doesn’t sense there is any more political will to make tough decisions today than there was two years ago when the Senate banking committee published its report.

“It’s going to take some goodwill,” he said. “The federal government is going to have to come up with some significant incentives.”

The other alternative might be going back to the well of support the Trudeau government used in order to survive the renegotiation of the North American Free Trade Agreement. The same economic arguments apply, and better access to provincial markets could be a hedge against Donald Trump’s penchant for trade wars.

But Canadian executives are going to have to show they want it.

•Email: kcarmichael@postmedia.com | Twitter: CarmichaelKevin

The federal government is proposing to stop Canada’s big banks from using the term “ombudsman” to describe the people and procedures they employ to deal with complaints.

Under the current rules, banks are required to have their own system for handling those complaints, and all of Canada’s Big Five lenders have a designated “ombudsman” as part of their processes.

But Bill C-86, a sweeping piece of budget-implementation legislation that was tabled on Monday, contains a “framework” for protecting financial-services consumers, as well as a proposal to block the banks from using the ombudsman title. 

“An institution shall not use any misleading term with respect to its procedures or designated officers or employees,” the legislation says, “including any term that suggests that the procedures, officers or employees are independent of the institution — such as the term ‘ombudsman’ or any other term with a similar meaning — or any prescribed term.”

The Department of Finance confirmed in an email that the bill, if passed, “would prohibit banks from using misleading terms with respect to their complaints-handling procedures, including terms that suggest that the procedures, officers or employees of the bank are independent.”

This includes “a prohibition” on the use of the term ombudsman, they added. 

In a statement, the Canadian Bankers Association said lenders “recognize the importance of the provisions in Bill C-86 to create a consumer framework for financial services.”

“This is an issue on which we have been working cooperatively with the federal government and we look forward to working through the Parliamentary process to achieve a practical approach to implementing the various elements of the Bill.”

Nevertheless, the question of how the banks resolve customer complaints remains a sensitive subject in Canada.

Under the current rules, lenders must also belong to an external body that deals with complaints that have not been resolved to a customer’s satisfaction by a lender’s internal procedures. In Canada, the two main providers of this function for the banks are the not-for-profit Ombudsman for Banking Services and Investments (OBSI) and ADR Chambers Banking Ombuds Office (ADRBO), a private, for-profit company.

… the question of how the banks resolve customer complaints remains a sensitive subject in Canada

Bill C-86 would not force the two external complaints bodies to change their names. The status quo, though, has met with dissatisfaction from consumer groups, which was reignited after the Bank of Nova Scotia announced in September that it would switch from OBSI to ADRBO for banking-related complaints, joining Royal Bank of Canada, Toronto-Dominion Bank and National Bank of Canada.

OBSI remains the ombudsman for investment-related complaints for all the banks.

CARP (formerly the Canadian Association for Retired Persons), the Consumers Council of Canada and FAIR Canada have already launched a letter-writing campaign to push Ottawa to mandate that there be a “single impartial, non-profit external complaints body — one that is not perceived to favour the banks,” a press release put out on Thursday said. 

The same release criticized the federal government for not making the change to a single ombudsman with Bill C-86, saying the legislation “leaves in place a multiple external complaints body system and, therefore, fails to protect Canadian banking customers by denying them access to a non-profit, independent dispute resolution provider.”

However, the federal government says that Bill C-86 will still require the banks to be a member of an approved independent external complaints body.

Those bodies, the government added, “must maintain a strong reputation for being operated in a manner consistent with the standards of good character and integrity, and to ensure that complaints are addressed in an impartial and independent manner.”

• Email: gzochodne@nationalpost.com | Twitter: GeoffZochodne

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A latest blockchain ranking report has put Bitcoin behind the new blockchain projects like EOS and Ethereum.

The 6th Global Public Blockchain Technology Assessment Index, published by the China Electronic Information Industry Development (CCID), a government organization, listed bitcoin at the 19th position according to technological merits. At the same time, blockchain projects that surfaced after bitcoin took prime spots, with EOS topping and Ethereum, Nebula, Ripple, NEO, IOTA, amongst others, following closely.

The index judged a total of 33 public blockchain projects based on their underlying technology, applicability, and creativity. While Bitcoin has been unable to beat many of its closest blockchain peers on all the mentioned parameters, it still has managed to stay ahead of its forked version, Bitcoin Cash, which stands at the 31st spot on the index.

Interestingly, the same index report from August had put Bitcoin among the top ten blockchain projects. The last month saw the digital currency dropping to the 17th position with a total of 93.2 index points. In October, the points fell further to 92.5, bringing the credibility ranking of the bitcoin blockchain to the 19th spot.

The drop could have appeared in the wake of Bitcoin’s lower adoption while settling payments or creating decentralized applications (dapp). The digital currency’s public blockchain so far is relying on a third party solution to fix its prevailing scalability issue.  It has made Bitcoin a less attractive payment tool than its peers whose blockchain confirms transactions faster.

Nevertheless, the CCID pointer system revealed Bitcoin’s dominance as far as innovation is concerned. The digital currency scored 34.6 points on creativity, trailing ahead the rest of the 32 listed coins on the index.

“Innovation aspect, the top five were Bitcoin, Ethereum, Square, EOS, NULS, and Cardano,” the report read. “Compared with the previous period index, the index increased the most innovative public chain were NULS, IOTA, Nebula, and Bitcoin Cash.”

EOS, Ethereum Dominate

EOS and Ethereum continue to dominate the CCID index for the fourth time. The dapp and smart contract platforms this time scored 150.5 and 136.3 points, respectively, mainly excelling in terms of basic technology and applicability, which Bitcoin lacked. The report said:

“At present, EOS and Ethereum are undoubtedly the preferred platforms for Dapp development worldwide, and EOS is showing a stronger momentum. The data shows that EOS Dapp is highly active and user increments are large.”

New blockchain projects like Ripple and Nuls also entered the top 10 list, pushing Lisk and Qtum out. While Ripple had a strong month with the launch of its xRapid payment solution and partnerships with major banking and financial firms, Nuls, a China-based blockchain project, scaled its operations by entering the US market.

Featured image from Shutterstock.

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