Prime Minister Pierre Trudeau's Liberal government expects to unveil on Tuesday, along with the annual budget, sweeping and highly controversial orders for the "Canadianization" of the largely American-controlled oil and gas industry. His goal is to assure at least 50 percent Canadian ownership by 1990.
Trudeau is also planning to establish, unilaterally, a new oil pricing schedule for all of Canada. In effect, this will formally scrap the pledge by the previous Conservative government to permit prices to move quickly to world levels.
At the same time, the government will impose hefty new federal energy taxes designed to force the rich western provinces, especially Alberta -- which accounts for 85 percent of all Canadian oil production -- to share their enormous wealth with the rest of the country.
Trudeau's readiness to accept an open confrontation with Alberta comes against the backdrop of a constitutional battle with the provinces. Trudeau is pushing a new constitution, complete with a wide-ranging bill of rights, including equal privileges throughout Canada for the French-speaking population.
One adviser to Trudeau explained it by saying: "We don't want another Middle East in western Canada with the corporations and the province of Alberta owning everything in the country."
Because of the vast rise of oil prices, starting with OPEC's first big increase in 1973, the stakes are enormous. Energy Minister Marc Lalonde estimates that Canadian oil and gas revenues during the next 10 years will be $350 billion to $400 billion. The way the system works, that would be split 45 percent for the companies, 45 percent for the provinces (which under Canadian law own the national resources within their boundaries) and 10 percent for the federal government.
In his successful campaign to regain government control from conservative Joe Clark, Trudeau -- now surrounded by a more left-liberal cast than was true in his first administration -- argued that the existing 45-45-10 split had to be recast to prevent a worsening of economic imbalance in Canada.
Precise details of the new split will not be known until Tuesday at 8 p.m. But the oil companies and the western provinces are bracing themselves for Ottawa to take a 20 to 30 percent share.
"You'll hear lots of screams no matter what we do," said a top insider. "The funny thing is that Alberta would be willing for us to take our bigger cut exclusively out of the hides of the companies, but we're not going to do that."
Canada's oil and gas industry, which once was almost 100 percent foreign-owned, is not about 75 percent in the hands of foreigners. According to Lalonde, 19 of the top 25 companies producing oil and gas in Canada have more than 50 percent foreign ownership. All of the 19 are multinationals based in the United States, except for Shell and British Petroleum. The largest Canadian-controlled company, the government's Petro Canada, ranks only ninth.
As things stand, an energy expert in the government explained, the foreign owners of Canadian oil companies have enjoyed what amounts to a transfer of wealth on the order of $40 billion to $50 billion in the incremental value of their oil reserves since OPEC shot prices skyward in 1973. And that is based merely on a Canadian oil price artificially held to roughly half the OPEC price. And as oil prices go up, that bonanza will grow.
"We are simply not prepared to see the indefinite extension of foreign control," Lalonde told a group of American investors last month. "Canadians must be partners, not just employes, in our future oil and gas industry."
In an interview in his office overlooking Parliament, Herb Gray, the minister of industry, trade and commerce who together with Lalonde has been a driving force for Canadianization of energy, said: "Our measures are aimed at advancing Canadian national interests, not at any country or against any enterprise based in other countries." Gray and all other officials insist that Canadianization of the oil industry is not the forerunner of similar percentage limits on foreign investment in other industries.
Trudeau and his Cabinet are convinced that the basic decisions about Canada's energy future should not be made in board rooms in Chicago, New York or Texas. They hold that the foreign-controlled subsidiaries that dominate most of Canada's important industrial sectors "deliver less," as Gray put it, from the standpoint of Canada's national interest. For example, until Husky Oil was taken over by a Canadian company, none of Husky's research work was done in Canada, although a full 75 percent of Husky's production was in Canada.
They see energy as the galvanizing force for Canada's further industrialization in the 1980s and 1990s and believe that it is a case of "now or never" to push the foreign owners into a more manageable relationship.
To squeeze American or other foreign control down toward and below the 50 percent level, there will not be any heavy-handed, forced stock divestitures, sources say. Rather, there will be what Gray called a "carrot and stick" approach. In some cases, effective control is already exerted through substantial minority ownership.
A key technique, apparently, will be to withdraw from the foreign-dominated companies the extraordinarily favorable depreciation allowances that have been the rule until now. Coincidentially, Canadian companies will be favored with exploration and development grants, especially in federal lands, and in the new and promising offshore Newfoundland areas.
The current tax system has a de facto bias in favor of the foreign-dominated energy companies that had near total control 10 to 20 years ago. With their large income bases, they pay only 37 percent of the cost of exploration, while the Canadian taxpayer picks up the balance. But smaller and newer Canadian companies, without the income against which to take tax credits, pay 100 percent of their exploration costs. "The whole thing is absurb," says an energy specialist in the government. "The oil and gas industry is the least taxed industry in Canada."
Nobody denies the economic imbalances between the west and east in Canada that threaten the confederation's economic viability. Western separatism used to be laughed off as chauvinistic bombast, but no longer. Oil riches brought staggering success to Alberta, a Conservative Party stronghold, while the industrial east, the Liberal Party's seat of power, is pretty much a distressed area.
Ottawa insists that Alberta will continue to be the richest province, regardless of the bite it takes on Tuesday. And it justifies its action not only on the constitutional division of powers, but because federal programs have contributed to the growth of the oil industry everywhere in Canada.
The increased cash flow that Trudeau expects to get from a more favorable split of oil revenues will of course help to pare back Canada's enormous federal deficit, estimated to be in the neighborhood of $14 billion. In American equivalent terms, that would be about $140 billion.
Trudeau is establishing the new oil price schedule after failing to reach agreement with Alberta. Western Canadian crude oil sells for $16.75 a barrel at the wellhead, up $3 this year, but still only about half of the world price. A central element of the Trudeau government's policy on energy is that Canada should not be bound to the higher OPEC price structure, inasmuch as it can produce about 70 percent of the oil it consumes. Although Canada imports some oil for its energy-short East Coast, it actually is a net energy exporter, counting all forms.
Alberta and the companies of course would like to go to the OPEC price structure. But the Trudeau government says it will never grant the Albertans and the companies such a huge windfall. In 1990, a government expert here calculates, even after Alberta is forced to share some of its wealth, "it will have enough money in the bank to buy the entire manufacturing capacity of the rest of the country."