Alberta Relying on ‘Pipeline Dream’ to Balance Budget in 2023-24, Rating Agency Charges

A key bond rating agency is accusing the Alberta government of relying on a “pipeline dream” to balance its budget by 2023-24, after Finance Minister Joe Ceci delivered his budget in Edmonton last week.

“The 2018 budget marks Alberta’s first step in articulating a path back to balance by 2023–24 and is a yardstick with which future progress can be measured,” Toronto-based DBRS Limited said in a release. “However, instead of outlining concrete and meaningful measures to tackle the structural deficit, the province will continue relying on a sustained economic recovery, rising oil prices and additional pipeline capacity to drive the improvement in the bottom line.”

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Toronto-based Moody’s Investors Service declared the province’s debt burden “a credit negative”, noting that the funds would be needed both to finance deficits and pay for capital expenditures.

Moody’s acknowledged that Alberta’s oil price forecast—US$59 for West Texas Intermediate Crude over the next year, rising to $63 in 2020-21—was in line with its own. “Nevertheless, Moody’s notes that should prices not materialize, the budget forecasts are at risk.” The agency added that the budget “is concerning, in that little effort is being made to address the budget deficit in the near term,” despite “ample capacity” to raise taxes.

CBC notes that Ceci’s five-year financial plan, in which the province’s debt rises from C$54 billion this year to $96 billion in 2023, “rests on the assumption the controversial Trans Mountain pipeline expansion from Edmonton to Burnaby will get built, even though it faces opposition in B.C.” Canadian Press cites Ceci explaining that it makes financial sense to factor in Trans Mountain and Enbridge’s Line 3 pipeline expansion now, then adjust the plan in future years “as the situation develops”.

“That is definitely the hope of the companies that are involved,” Ceci said. “We’ve built (the revenue) into the budget because that’s what everybody believes will happen.”

While the ratings agency might prefer to see Alberta slash the social investments that helped sustain the province through a multi-year oil crash, Ceci’s preference is to invest now to “wean the province’s economy off its dependence on oil and gas extraction after the recent downturn in the sector plunged the government’s finances into deficit,” Bloomberg reports. The budget includes tax credits to support investments in manufacturing, processing, tourism infrastructure, and petrochemicals.

“For too long, Alberta has been locked in a cycle of boom-and-bust spending that tracked the price of non-renewable resource spending,” Ceci told the provincial legislature. Now, he said, the government will set out to increase entrepreneurs’ access to capital, strengthen the technology sector, and attract investment to the petrochemical industry.