B.C. Liberal government slashes rate in long-awaited LNG tax

According to the legislation, a 1.5% tax will apply and is creditable against the 3.5% tax while a project’s net operating losses and capital investment are being deducted.

A proposed tax on the LNG industry was originally announced in the Liberal government’s February 12, 2013, throne speech. It was touted as the reservoir for a B.C. Prosperity Fund projected to collect a minimum of $100 billion over 30 years and a key to eliminating the province’s debt, which is on track to hit $68.3 billion by 2016-17.

It was originally floated as including an initial rate of 1.5% that would increase to 7% on exports once a project’s capital costs had been recouped.

Since then, energy industry analysts and LNG proponents have warned that the tax, coupled with other challenges facing development of B.C.’s natural gas industry, would threaten the economic viability of their projects and the competitiveness of B.C. LNG in the global marketplace.

In September, B.C.’s LNG tax proposal and other aspects of the nascent LNG industry in B.C. came under heavy fire from Petronas chief executive Shamsul Abbas.

Malaysian-government owned Petronas has a 62% working interest in Pacific NorthWest LNG, which is proposing an $11 billion LNG project in B.C.

B.C. Finance Minister Mike de Jong said Bill 6 would give LNG proponents a clear understanding of B.C.’s tax framework and allow them to begin making final investment decisions.

But, in a press release, NDP LNG spokesman Bruce Ralston blasted the legislation as being “written by industry and for industry. It cuts in half the LNG tax the premier said was fair in the February 2014 budget.”

He added that the reduced tax rate and deductions for pre-construction costs will also reduce the public’s share of the LNG wealth previously promised by the Liberals.

According to the province, there are 18 potential LNG projects in B.C. that have invested more than $7 billion to acquire natural gas assets in the province. An additional $2 billion has been invested in B.C. LNG infrastructure construction preparation.

David Keane, president of the recently formed BC LNG Alliance, said his organization appreciated the government’s revisiting the original tax structure and recognition that the industry operates in a global environment in competition with a number of other jurisdictions, including Australia, the United States, Russia and East Africa.

But he said the tax is just one aspect of an overall fiscal framework that alliance members must deal with. Other concerns, he said, include global LNG prices and workforce and labour skills.

He added that the tax load faced by B.C.’s LNG industry is significant.

“Now we will be paying an LNG tax, a carbon tax and … we will also have to purchase carbon offsets, we will be paying PST, GST, municipal property taxes, payroll taxes and, of course, corporate income taxes at both the federal and provincial levels.”

However, Keane said B.C.’s LNG industry still has a competitive advantage in the global market because of its relative proximity to the main LNG markets in Asia.

At a Tuesday sod-turning ceremony to mark the start of a $400 million expansion of the FortisBC Tilbury Island LNG plant, Premier Christy Clark said that, now that the government has defined rules around taxation and emissions for LNG plants, companies like Petronas can start making final investment decisions. Of the 15 companies that have proposals to build LNG plants, Clark said “maybe five” are likely to proceed.

“Some of them look like they’d be in a position to start to make the final investment decision in December, January, February perhaps,” Clark said. “After that we would expect the companies that have taken an early final investment decision would probably start … investment reasonably quickly after that. They’ll want to take advantage of their first-mover advantage.”

Spencer Sproule, Pacific Northwest LNG senior adviser, corporate affairs, said in an email that the company was still in the midst of reviewing the proposed tax.

But added that “PNW LNG has been consistent right from the start: we believe that British Columbians deserve to benefit from natural resource extraction. At the same time, it is imperative that all levels of government recognize the need to remain competitive with other jurisdictions around the world that currently, or plan to, export LNG.”

Unveiling of B.C.’s LNG tax follows Monday’s introduction of legislation that Environment Minister Mary Polak said would ensure the province will have the world’s cleanest liquefied natural gas facilities.

– With files from Nelson Bennett.