CCET -- TALKING SENSE

Instead of passively accepting the nonsense about income trusts now spewing from Ottawa, please check out the wise words emanating from the Coalition of Canadian Energy Trusts (CCET).

The CCET tells it like it is, regarding the blantant mishandling of the income-trust question by Canada's tiny perfect Finance Napoleon, Jim Flaherty. And they demonstrate the many negative (and usually unintended) consequences of Mr. Flaherty's misguided war on royalty (energy) trusts in particular.

Here's a transcript of the Coalition spokespersons' opening remarks at their first press concerence in December 2006:

"Good morning. Thank you for joining us today, we sincerely appreciate your interest.

Yesterday a reporter wrote: “someone should encase income trust lobbyists in concrete and fling them off a bridge into deep water.” My first reaction was --- just how much concrete would it take for [my colleague] John?!

With more sober thought, I was disappointed to think that we would be vilified for asking to be heard in respect to a Government policy change that has such significant impact on our country and our investors. Given our knowledge and familiarity with the facts of energy income trusts, our voice must be heard. Canadians, such as the members of our coaltion, deserve to be heard by Government in a meaningful way.

Well Ladies and Gentlemen, to date we have not been heard in a meaningful way.

Despite Minister Flaherty’s comments made on Monday, and echoed by the Prime Minister, that “it’s over, the case is closed,” --- we are here to assure you it is not over.

Today we present the findings of a report we have compiled based upon the input of data and information received from members of the energy trust sector and other third parties.

We are challenging the government’s assertions in respect of their new tax proposals as they relate to Canada’s energy sector.

Since our November 6th news conference when we issued a call for meaningful consultation with the government, we have been extremely busy on two fronts.

(1) First, we undertook the gathering of information and completed the document presented today. This report speaks to:

* productivity enhancement in Canada

* payment of taxes for the benefit of hard working Canadians

* support for Canadians in their retirement years, and

* Initiatives by energy trusts to significantly reduce green house gas emissions

All of these contributions are threatened by the proposed tax changes.

(2) Secondly, we have spent a considerable amount of time meeting with members of parliament of all party affiliations. Additionally, we have met with the media, investors, the Finance Department including the Minister of Finance as well as Senator Grafstein, Chair, Senate Banking, Trade and Commerce Committee. Our purpose was to elevate our call for meaningful consultation as well as to secure facts supporting the recommendations of the Finance Department to Government.

It is our view that the Finance Department did not do its homework. Here is what we have determined:

* Through a request under the Freedom of Information Act for analysis that supported the government’s proposals, we were told that no documents could be found supporting the Governments action.

* Conversations with numerous Conservative MPs failed to point us towards supporting documents. The typical response received was the [Flaherty] “party line”. We know many of these MPs have unanswered questions of their own.

* Despite our request for clarity, the Finance Department could not show any meaningful information that supported a 180 degree turnaround by Government on a key election plank [promising to "protect seniors" and "not tax income trusts"]..

Ironically much of the data in our accompanying report required collection through a variety of sources – something we believe was not conducted by the Finance Department.

Our obvious conclusion – Government did not do its home work and as a result is making a major decision that will harm millions of Canadians based on insufficient information. If we’ve missed the updated analysis that has resulted in a complete reversal or policy, then we call upon the Government to make it readily available to all Canadians now.

Sue will highlight our findings contained in the report:

Ignorance Is Conservative Bliss

Let me start by re-iterating that it is our belief the Government is making decisions with inadequate information relative to the energy sector and not in the best interest of Canadians and our economy.

Government is concerned that trusts cause federal tax leakage. This is not the case with Energy Trusts. Our members have generated greater taxes both provincially and federally than would have occurred had they been structured as corporations. Our report shows that oil and gas producing trusts represent 16% of revenue but generate 30% of tax revenue collected from publicly-traded oil and gas entities.

Unlike exploration and production companies, energy trusts do not generate tax pools resulting in minimal corporate taxes being paid [as do tradiitonal corporate common equities]. Rather, our distributions generate tax from personal income taxes from taxable Canadians, future (deferred) tax from tax-deferred accounts (RSPs), and a 15 to 25 % tax from foreign investors.

Unitholders across Canada are receiving millions of dollars of distributions from energy trusts. In fact, the majority of our Canadian unitholders reside in eastern Canada. And, in petroleum producing areas, energy trusts are generating provincial royalities and contributing to the local economy through the purchase of goods and services.

Government is concerned that trusts threaten Canada’s long-term economic growth. This is simply not the case for energy trusts. In fact the opposite applies – we are important contributors to the Canadian economy.

Energy trusts typically focus at maximizing production from oil and gas pools that many energy players have ignored in a quest for more lucrative opportunities. That effort requires capital, because oil and gas producers have to reinvest to keep production flat, let alone grow it. This need for capital reinvestment distinguishes energy trusts from many business trusts, which have much lower reinvestment needs. Energy trusts have methodically acquired, optimized and in many cases have grown production from mature oil and gas properties. The result – our members produce about 20% of Canada’s petroeleum energy.

The energy trust model enhances the Canadian energy industry through our symbiotic relationship with the other players. From senior producers we buy and enhance mature assets. Junior oil and gas companies agressively grow small oil and gas assets and as they mature, sell the assets to trusts. In Turn, the recapitalized junior proceeds to its next exploration opportunity.

Capital investment over the past 5 years by energy trusts has exceed more than $35 billion through acquisitions. In addition, $15 billion have been invested to optimize production.

We do not believe the Government has factored into their decision our unique role in Canada’s energy industry and has overlooked the value we provide Canadians.

Bill will outline the potential impacts to the social fabric of western Canada [of the Harper Government's new trust tax proposal]:

Trusts Enance Prosperity In Small Western Oilpatch Towns

Through the tax proposal the Federal Government has created winners and losers. The proposal favours the minority of Canadians with defined benefit pension plans at the expense of the majority of Canadians who depend on contributions to self directed registered retirement savings plans for their golden years.

On October 31, 2006 the Conservative Government delivered a major blow to the investment portfolios of small retail investors in order to appease the interests of large corporations, high net worth investors and private equity interests. In an effort to help average Canadians, the government has punished them.

Independent Canadians, who chose to invest in a vehicle that Prime minister Harper pledged to protect, have been cast aside and the Government has decided to court the privileged minority with defined benefit pensions and to curry favour with large corporations and private equity interests. Quite a trade and quite a change from a party that was founded on grassroots support from small town and rural independent Canadians. We have a saying in the west that you “Dance with the one you brung”. Looks like the Government found more interesting partners at this dance and left behind the ones who got them there.

Energy Trusts operate for the most part in rural communities throughout western Canada. By optimizing production from mature oil and gas pools we extend the economic life of not only the pools but also of the communities that provide labour, goods and materials. Our employees work in hundreds of communities throughout western Canada. Collectively the trusts and our employees pay school taxes, local taxes and provincial taxes and tariffs that are necessary to provide Canadians, and especially rural Canadians, with the quality of life associated with small communities.

The Prime Minister recently commented on the potential for removing tax incentives available for mega projects such as the oil sands by saying that western Canadians had already been hit by the proposal to eliminate energy trusts. Does this imply that he has abandoned the notion of balance between conventional oil and gas optimization and oil sands development based on Finance Department notions that don’t hold water? Or did he base it on the fear of future large business trust conversions? Why are we as an industry forced to choose between optimization and agressive development, between utilizing existing infrastructure and building new infrastructure and between home town and boom town?

The model was working. There was room for both. In a rush to make policy and prevent future tax leakage has the Government compromised Canadians? In the weeks since the announcement, I have taken calls from Canadians from coast to coast who have had life savings eroded, who have had to alter their retirement plans and who feel sold out and betrayed by the actions of the Government.

It is no consolation for them to have some Bay Street slick tell them that they should have diversified or better yet, have their fate decided by someone who believes that individuals who depend on assets in their registered retirement savings plans for future income are somehow labelled tax evaders.

The Finance Department in Ottawa remains hunched over their spreadsheet (assuming they have one) inisiting that there is tax leakage and that there is no room in Canada for a Made in Canada solution that revitalizes mature oil and gas fields, keeps rural communities vibrant and provides a meaningful source of income for independent investors.

Now John will outline other critical Canadian issues being ignored by the Minister’s actions and outline our conclusions and go forward plan:

Energy Trusts: Improving The Environment

For those of you who have discussed the Government’s approach to trust with me know that I’m slightly annoyed …well maybe that’s a euphenism. We should never have been placed into such an untenable situation.

This Government does not understand energy trusts and our report shows this in spades. And, not even acknowledged in decision making by the government is the critical role we play for CO2 reduction and as a contributor to Canada’s world energy leadership.

Members of our Coalition are leaders for CO2 sequestration and the precious environmental capital being invested will simply not be available under proposed tax changes. Canada’s work towards the reduction of Green House Gas emissions will be materially impaired.

The Prime Minister has said he wants to make Canada an energy superpower. Damaging the energy trusts will reduce Canadian energy production and ultimately cause consumers to pay more for their energy. None of those outcomes are conducive to the energy superpower role Mr. Harper envisions for Canada.

Government has said, and departmental officials have leaked, that there is no precedent for treating energy flow-throughs as distinct and exempted from other resource industries. This is simply not accurate. The United States not only provided a 10-year transition period and a conversion option but explicitly exempted resource industries from tax measures. We need to be able to compete in a North American energy market.

Our conclusion is that energy trusts are different from other trusts. Exempting energy trusts from the proposed tax changes is the only sensible course of action for our members, Unitholders and Canadians.

We will continue to press for meaningful consultation, and we emphasize meaningful.

We will vigorously continue our quest to preserve the energy trusts’ position in Canada’s vital energy industry. As our colleagues at the Canadian Association of Income Funds have done, we will pursue an aggressive public campaign to engage Canadians in this important issue and will announce our communication strategy in the coming weeks.

The case is not closed. this is an important issue to our nation. When Canadians begin to hear in plain language what their Government is proposing, we believe they will stand by our side.

Thank you.