Home April 2018 A Walk Through the Graveyard of Alberta’s Economic Diversification

A Walk Through the Graveyard of Alberta’s Economic Diversification

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Brock Harrison

Just whisper the words “economic diversification” around any provincial politician or government official and watch their eyes widen and their ears perk up.

Diversification is a useful economic objective, provided governments act prudently in their pursuit of it, which is why Albertans may have trembled just a little when Premier Rachel Notley announced last month that the province will spend $1 billion to support partial bitumen upgrading.

Alberta’s history is littered with examples of business gambits gone horribly wrong. Here are a few tombstones you’ll find in the graveyard of Alberta’s economic diversification:

 

MagCan

An abandoned red-brick monstrosity between High River and Okotoks on Highway 2A is all that remains of Alberta’s ill-conceived foray into magnesium.

In the early 1990s, the site was home to MagCan’s first and only ever magnesium smelter – a $200 million venture that was supposed to produce 60,000 pounds of magnesium ingots a day.

MagCan, pitching jobs, tax revenues, and the ever-elusive concept of diversification, managed to squeeze $103 million from the Alberta government in the form of a guaranteed loan to get off the ground. The province thought MagCan would be the vanguard of vast new swaths of industry in Alberta. Instead, most of MagCan’s early investors bailed and the plant ended up closing after less than a year in operation, taking a total of $164 million from Alberta taxpayers down with it.

 

NovaTel

Eager to stake a claim in the burgeoning mobile communications industry, the province joined forces in 1983 with Nova Corporation to manufacture cellphones under the corporate name NovaTel. The company was quickly beset by quality and management issues and, by 1989, Nova wanted out. Nova sold its shares to Alberta Government Telephones for $42.6 million, in effect leaving the Alberta government as NovaTel’s sole owner. The company continued to perform poorly while the province pumped it full of tax dollars to keep it afloat. Alberta lost over $200 million more in a botched sale to Telus during AGT’s privatization.

The province searched desperately for a buyer until it finally sold its remaining assets in 1992. Auditor General Donald Salmon eventually calculated the total loss to taxpayers from NovaTel at between $544 million and $614 million.

 

Lloydminster Bi-Provincial Upgrader

In 1988, Alberta jumped with both feet into the deep end of the bitumen upgrading business.

It joined with the governments of Canada and Saskatchewan, along with Husky Oil, to build an upgrader that would produce 46,000 barrels of crude a day. In accordance with its 24 per cent share, Alberta forked over $404 million in construction costs only to discover the upgrader would operate at a loss. By 1994, the upgrader’s operational shortfall hit $80 million, $19.3 million of which Alberta covered. Only two years after the upgrader refined its first barrel of crude, Alberta sold its share of the operation to Husky and Saskatchewan for a measly $32 million.

University of Calgary professor Ted Morton estimates the total loss to taxpayers from the province’s ill-fated interventions in diversification to be well over $2 billion. That’s truly a staggering number, and one that should come to mind and make our blood run cold whenever any government starts throwing money at unproven diversification projects.

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