Auditor general: GN must plan for high-cost fuel

The auditor general of Canada, Sheila Fraser, warned Nunavut MLAs last week that “huge financial losses could be a reality” if the Government of Nunavut does not soon prepare for the impact of escalating world oil prices.

Fraser made the comment in her opening remarks to the legislative assembly’s standing committee on government operations. Committee members began poring over her latest report on June 18.

The rising cost of energy will likely hit Nunavut consumers this fall, after fuel tankers deliver new supplies bought at this year’s high prices.

But the cash-poor Nunavut government will be battered most of all, since few consumers actually pay the real cost of fuel and power.

The GN pays most of those bills for them, through a variety of subsidy programs. It’s also the largest energy consumer in Nunavut, paying more than 80 per cent of the Nunavut Power Corp.’s bills.

“It’s kind of scary,” Rankin Inlet North MLA Tagak Curley, a committee member, said in an interview.

Curley said he agrees with Fraser’s suggestion that the GN should develop a fuel price policy, and he suggested that the GN look at ways of privatizing Nunavut’s fuel distribution system. He also questioned the wisdom of turning the GN’s petroleum products division into a Crown corporation.

Cambridge Bay MLA Keith Peterson said he’s worried that rising energy costs will divert money from other government programs.

“It’s going to be huge. For much of that increase, the government is going to have to cover the cost for consumers,” Peterson said.

Peterson pointed out that the budget for the health department alone has doubled since 1999. The GN gouged $20 million from other government departments this year to cover the health department’s rising costs in 2004-05. Now energy costs are threatening to create similar budgeting problems in the future.

Bob Vardy, the deputy minister of finance, told committee members that with no accumulated surpluses, the government may have no choice but to make program cuts in the future.

“You will see the energy sector making new demands,” Vardy said.

Iqaluit Centre MLA Hunter Tootoo, the chair of the committee, said in an interview that he agrees Nunavut needs a fuel price policy.

Tootoo said the government needs a plan to figure out how much consumers should pay for energy, and how much the government should pay to protect consumers.

But if they didn’t know it before, MLAs know now that the power corporation’s rates must rise anyway.

In her report, Fraser said the NPC’s rates – set in the late 1990s – have been set too low to pay for the rising cost of the diesel fuel that the NPC burns to generate electrical power.

Now, she says, Nunavut government officials must “take notice” of rising world oil prices.

Though most of the world’s oil producing nations are already pumping out their product at full capacity, rising demand, especially in China, and instability in Iraq, Nigeria, Venezuela and Saudi Arabia is pushing world crude oil prices close to $40 U.S. a barrel.

When the NPC last set its power rates, world oil prices ranged from about $16 to $20 a barrel.

That means Nunavut residents – and the Nunavut government – will soon pay more for all forms of fuel: the gasoline that powers snowmobiles, trucks and cars, heating oil for homes and buildings, naptha for hunter’s Coleman stoves, and diesel fuel for the NPC’s power stations.

“The problems in NPC’s recent past should point clearly to the need for a well though out, and timely strategy on energy pricing in Nunavut. Otherwise huge losses could be a reality,” Fraser warned.

“Your committee may wish to ask government officials what the impact of recent fuel prices will be for both Nunavummiut and the government itself.”

Finance Minister Leona Aglukkaq has already announced that the power corporation will impose a 10 per cent “rate-rider” on power bills. The GN has set aside a $10 million subsidy to protect consumers from the impact of the 10 per cent increase that they’ll find on their power bills.

At the same time, the Utilities Rate Review Council, a government-appointed watchdog that must approve power rate increases before they’re imposed, will begin work this summer on a new power rate application they expect to receive from the power corporation.