Alberta has more oil money than it knows how to spend

Oil-rich Alberta, with fewer than 2 million people, has a problem, if it really is a problem: how to spend $5,000 a minute. This Texas-sized province of Canada has collected some $8 billion from an oil boom in just four years, a tidy nest egg that Premier Peter Lougheed's government is having a difficult time spending.

The wealth is tipping the balance between the often- rival east and west in Canada as well as straining relations between the federal government in Ottawa and the loose confederation of provinces.

Any attempt by Canadian Prime Minister Pierre Trudeau to control Alberta resources or take more of its wealth "would be tantamount to the Boston Tea Party or the first shot at Fort Sumter and would turn every westerner into a separatist," warns Nick Taylor, Albertan leader of Mr. Trudeau's Liberal Party.

With most of Canada's oil wells in his province, Mr. Lougheed plans to redress old western grievances against the Anglo- French "Golden Triangle," the built-up area between Ottawa, Montreal, and Windsor where most Canadians live, using the taxes and royalties imposed by Alberta on the petroleum business.

This economic clout, resulting from higher oil prices, is his political lever against the population clout of the east.

"Alberta is pure OPEC country," says Concordia University professor Fred Knelman in Montreal.

In 1976, the Lougheed government began to bankroll a Heritage Trust Fund using 30 percent of the petroleum tax revenues and royalties. The other 70 percent pays off municipal debts, creating a relatively tax-free economy.

The fund's purpose is to finance the dreams of tomorrow's Albertans and prepare for the day when the oil runs out. But as it is now larger than anyone expected, the fund is perceived as a financial menace by the rest of Canada and an ominous presence in sparsely populated Alberta.

By the end of the decade, the fund could reach $35 billion or even more -- depending on whether Mr. Lougheed can force domestic oil prices near world levels.

The federal government now receives a 9.5 percent of Alberta's oil profits, the province of Alberta about 46 percent, and the oil industry about 44 percent.

Alberta's economic growth was double that of other provinces in the 1970s and will be triple in the 1980s, according to the province's forecast. Between 1972 and 1978, Alberta's percentage of the gross national product rose from 8.2 percent to 12 percent. Business on the Alberta stock exchange more than doubled last year.

Currently receiving some 30,000 immigrants a year, Alberta's population is projected to increase by one-third to 2.8 million people in 1990 -- or about the size of metropolitan Toronto.

Alberta has the highest real estate prices in Canada, almost twice the average of other provinces. Albertans pay 32 percent less taxes than the average Canadian, and their government spends 16 percent more per person than do other provinces. "Obviously there is a considerable fiscal advantage to being an Alberta resident," says economics professor M. L. McMillian of the University of Alberta.

But, asks Don Wilson, editor of Canadian Futures magazine, "How much wealth can one region accumulate before it becomes a sovereign state?"

Like the 13 British colonies in America, a separation movement could possibly erupt in western Canada if Mr. Trudeau continues trying to assert more federal control over the provinces and if a strong pro-separatist leader emerges, such as occurred in Quebec with Rene Levesque in 1976.

A poll earlier this year showed western Canadians say they have more in common with the western United States than the rest of Canada. And following Mr. Trudeau's October plan for a tax on Alberta energy, two Alberta newspaper polls showed close to one-quarter of respondents favored separation from Canada. Mr. Trudeau dismisses such talk as "hysteria."

So far, Mr. Lougheed does not talk of separation. At a recent conference of Canadian premiers, for instance, Prime Minister Trudeau asked rhetorically: "Who speaks for Canada?"

The response from Premier Lougheed: "We all do!"

For the popular Albertan leader, however, the financial fruits of oil are seen simply as a ticket to "buy" the influence Alberta seeks and to broaden the province's economy to someday rival the industrial areas of Ontario and Quebec.

"Alberta is like a rich lady putting $1,000 bills in her socks," says a top oil executive. Each $1 increase for a barrel of oil, plus an energy equivalent price rise of 15 cents for 1,000 cubic feet of natural gas, puts $250 million more a year into Alberta coffers.

The fund is a symbol of Alberta's new oil wealth, but also a target for its critics and a potential political dilemma for the Lougheed government. So far, it has invested more money than it spent. This reflects a deep concern in the once-poor western provinces of not having enough for the future.

"Saving for a rainy day is built into the western Canadian psyche. People here do not want to be treated like a colony [of eastern Canada] again. We had better set aside a savings account for the 1990s and future generations," says Lou Hyndman, Alberta's treasurer.

"This money doesn't belong to this generation. After 15 years, the conventional oil supply will be gone. We are selling a capital asset," he adds.

The Alberta fund has cousins in other newly rich oil nations, such as Mexico. But it hardly compares to the 1979 estimated $125 billion surplus of the Organization of Petroleum Exporting Countries (OPEC).

Such a large amount of cash has proved embarrassing for Alberta, evoking envy elsewhere in Canada. "It's like the rich man's house down the street. Everyone points at it," says Mr. Hyndman.

In fact, Ontario Premier William Davis and Quebec Liberal Party leader Claude Ryan have said that Alberta's extreme wealth does not serve national interests. They are afraid Mr. Lougheed could link Alberta's commercial loans to capital-hungry provinces with an agreement for higher oil prices. Critics charge that the fund causes a fiscal drag on other provinces, widens the cracks in Canada's confederation, and reduces Ottawa's role as the agent of redistribution of money.

Such charges only confirm Alberta's suspicion of eastern "paternalism."

In Alberta itself, the Lougheed government is under constant pressure to make the fund's benefits more visible. Many Albertans know that each $1 billion in the fund could mean $500 directly into their pockets. But that is not how the money will be spent. Treasurer Hyndman receives thousands of requests from people who want the money spent on some unusual investments.

"We get people advising us to buy the Louvre in Paris or build a canal to the Pacific or buy up an Hawaiian island," says Mr. Hyndman.

Polls show a majority of Albertans say the fund should be spent in the province only. But the fund has been given four purposes by the Lougheed government:

* To make more money by investing it, which so far has been the easiest, politically safest, and most common use of the fund.

* To invest in Alberta companies in order to build up certain industries, such as oil sands and petrochemical plants.

* To finance capital projects such as irrigation, hospitals, parks, and housing.

* To loan the money to other Canadian provinces for energy and industrial development, especially if it helps rather than competes with Alberta's interests.

Alberta's "generosity" to Canada, now measuring over $1 billion in loans, includes a $100 million grain terminal to British Columbia to help landlocked Alberta farmers export their crops and a $200 million for Quebec's giant James Bay hydroelectric project. Mr. Hyndman calls these loans "unifying links with the people of Canada."

Ultimately, the fund could help open oil wells in the Arctic, electrify a British Columbia railway, improve the Alaska Highway, dig coal mines in Nova Scotia, or improve the St. Lawrence Seaway. "That's part of being a partner in this confederation," says Mr. Hyndman.

Who chooses where the money is invested? Premier Lougheed announced at the fund's founding that the legislature would "in essence, control the tap and hold the purse strings." Yet, 80 percent of the fund does not need approval by the legislature, in which 75 of the 79 seats are members of Mr. Lougheed's Conservative Party.

"If General Motors wanted to invest in Calgary, we couldn't ask them to go into the glass bowl of legislative debate for negotiations," says Mr. Hyndman. The Lougheed Cabinet, made up to a large degree of former business and lawyer associates, makes the investments decisions. Hardly any loans are under $1 million. Such investments, as in any business, cannot be made in the light of public scrutiny, says Mr. Hyndman, who says that accountability comes at election time.

Alberta newspapers acknowledge their role as the only power left to question Mr. Lougheed's judgments on setting the course of the province with such a large financial lever.The Calgary Herald has called for a citizen watchdog group to monitor the fund. "It would lessen the prevailing feeling that the fund is run by a remote and exclusive club of powerful men," an editorial said.

But perhaps the most curious aspect of the Heritage Trust Fund is its role in fulfilling Mr. Lougheed's dream of creating a "light industrial" society in Alberta.

A new petrochemical industry fed by one of the largest natural gas pools ever discovered is considered to be the cornerstone of this new society. Alberta could become the world's largest supplier of plastics, anti- freeze, and other petrochemical products. Two plants already have been built, five more are on the line, and a goal of 40 world-scale plants are scheduled for the end of the century.

Keyed to petrochemicals is the building -- almost from scratch -- of a "brain center" of electronics and pharmaceutical companies. "We have no dream of an industrial state. We don't want smokestacks here. We want the best jobs. We want the brain power here. We want the upgrading of our resources here," Mr. Lougheed has said.

Diversifying the Alberta economy, which includes upgrading the beef and wheat farming industries, so far has been difficult. "We just want to establish the climate for risk takers," says Mr. Hyndman. Attracting workers in such industries as electronics may not be easy given Alberta's harsh climate and isolation.

But, for the meantime, Alberta leaders know they can just invest rather than spend the fund, thus keeping the province in the money for another century or more.

"The sun always shines on Alberta," says Premier Lougheed, echoing a description of the British Empire in the 19th century.