Who Really Benefited from the Sale of AEC?
by Gillian Steward
If the Alberta government had kept its AEC shares they would now be worth more than $1.1 billion.
During the past six years the Alberta government has privatized many of its operations. Liquor stores, hospitals and a heavy oil upgrader were among the publicly owned properties sold for bargain basement prices as the government sought to cut expenses and raise money for the Treasury.
The largest single disposal of assets was the government's sale of its 25 million shares in Alberta Energy Company (AEC) in 1993, three weeks before provincial Treasurer Jim Dinning presented his first budget which in turn set the stage for the election that confirmed Ralph Klein as Premier.
The shares were old for $19 each and netted the government $476 million. But now even that lucrative transfer of public wealth into private hands looks like a give away. As of September 2nd the price of an AEC share had more than doubled to $45.25. If the Alberta government had kept its AEC shares they would now' be worth more than $1.1 billion.
Did Albertans get a fair return for those shares and all the public wealth invested in AEC? It"s hard to tell because it appears the Klein government did not do that kind of analysis before it sold the shares. Background documents presented to cabinet in support of the sale focus on AEC financial data, share price and stock market conditions. There are no documents detailing the amount of public money', publicly owned land and other considerations deeded to AEC during the 20 years that the Alberta government was the major shareholder.
It was in 1974 that Premier Peter Lougheed assigned Rowland McFarlane, deputy minister of the office of Program Coordination, the task of organizing an energy company in which ordinary Albertans could invest. AEC, as the project came to be known, would. also give the Lougheed government an active presence in an oil patch dominated by multi- -nationals such as Shell and Exxon.
The federal government established Petro-Canada for much the same reason. But there was one major difference. Petro-Canada was a crown corporation wholly owned by the federal. government. AEC was a hybrid: half of the shares were purchased and held by the Alberta government while the rest were put on the open market at $10 a share.
Lougheed named David Mitchell, a successful petroleum engineer and neighbour, as the first president.. Mitchell then appointed the board of directors and subsequently negotiated a five-year interest free loan of $150,000 so he could purchase 15,000 AEC shares.
It would have been difficult for AEC to fail. Bankrolled by a provincial government that had more money than it could spend thanks to the rising price of oil; gifted with valuable properties such as the Suffield natural gas' field, Primrose oil fields,.and the Syncrude Pipeline and power plant, AEC soon became a stock market darling.
"AEC was given so many valuable properties it couldn't miss. It was a cash cow from day one" says McFarlane.
Over 50,000.Albertans subscribed to the first share issue. By 1980 the share price had risen so much shares were split three for one.
Even cabinet ministers and MLAs were allowed to cash in on the bonanza a. The government had more than a passing interest in AEC and was also responsible for regulating and taxing the oil and gas industry. But thanks to legislation introduced in 1975 by Don Getty, energy minister and minister responsible for AEC, all elected representatives could own AEC shares without having to worry about conflict of interest regulations.
When, Ralph Klein was elected Tory Leader in 1992 the government was mired in debt and deficits and needed a quick fix if it was to maintain voter confidence. The sale of AEC shares was discussed in cabinet on Tuesday April 13, 1993. On Friday April 16 Treasurer Jim Dinning announced that the shares would be put on the market the following Monday. There was no debate in the Legislature let alone public discussion of the matter.
Over the weekend brokers across the country took orders and almost as soon as the stock markets opened Monday morning all the shares had gone into private hands. Documents obtained through Freedom of Information don't reveal whether any members of cabinet held;d shares in AEC at the time or whether they were prohibited from placing orders before Mr. Dinning made his announcement.
Of the $476 million garnered by the government, $183 million was used to repay a loan from the Alberta Heritage Savings Trust Fund. In other words the government sold an asset so it could repay itself. $274 million went into general revenues. Underwriters and brokers earned a total of $19, million on the sale.
Less than a month later Ralph Klein called an election. The sale of AEC was not an issue. But Klein was able to point to the recent budget as proof that his government had made significant strides in reducing the deficit. And he could also brag that he had divested government of all business boondoggles that had been so costly to taxpayers. But AEC was no boondoggle. It was a profitable, wealthy company, and through their government Albertans were the majority shareholders.
"Unfortunately, over the years the government lost control of the company even though they had invested so much in it, says McFarlane. "That was never the original intention.
Today AEC is the 10th largest oil and gas operator in Canada and the largest natural gas producer. Last year (1998) it earned almost $2 billion in revenues and a profit of $24 million. The Suffield, Primrose and Syncrude properties given to company by the Lougheed government are still AEC's core revenue.generating properties.
David Mitchell remained with AEC until this year when he retired from the chairmanship of the board. Stan Milner, the current chairman, was also a member of the original AEC board. He now owns 196,000 shares worth about $10 million. Harley Hotchkiss, prominent Calgary businessman, Tory insider and AEC board member since 1996 owns $10 Million worth of shares. Donald Macdonald, former federal energy minister. with the Trudeau government and first appointed as an AEC director in 1981, owns $1 million worth of shares.
At AEC's annual meeting in Calgary in April of this year directors and company executives repeatedly congratulated themselves for.the company's success. But no mention was made of the. company's origins. No one publicly remarked that without the gifts of the people of Alberta this corporation would not have been nearly as successful and certain directors and investors would likely not be nearly as wealthy as they are today.
"AEC could have been the perfect vehicle for research and development into future fuels" says McFarlane. "Albertans could have led the world in that field. But AEC didn't do anything new. It did the same things all the other oil companies do."
The Klein government needed a quick fix in 1993. So one of the most valuable and enduring sources of public wealth was transferred into private hands. Makes you wonder what else they sold off without so much as a second thought.
Gillian Steward is a Calgary based journalist who is researching the takeover of public wealth by corporate interests.
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