Did the BC government fake LNG numbers before last year's election?

By David Broadland, March 2014

Emails between top-level BC civil servants show Premier Clark’s 100,000 LNG jobs were based on dubious assumptions thrown together at the last minute for her 2013 throne speech. Were those civil servants working for the public interest or Clark’s election campaign?

The BC Prosperity Fund got barely a mention in last month’s Speech from the Throne. But a year ago Premier Clark’s apparently far-sighted plan to develop a massive LNG industry that would create “100,000 jobs for BC families” and pump billions into Provincial coffers fuelled the launch of the Liberals’ election campaign. Their compelling clean-energy-and-jobs message brought them from 20 points behind to a surprising victory in last May’s election.

Now, though, Clark’s government appears to be stepping back from all that. The legislation to introduce a new LNG-supportive tax regime has been postponed a second time, for no apparent reason. Although Finance Minister Mike de Jong outlined the tax regime in his February budget speech, his plan to introduce it is vague.

Were the Prosperity Fund and the job claims part of an elaborate election ploy? It wouldn’t be the first time a government made an election promise it didn’t intend to keep. A more troubling possibility, though, is that Provincial public service employees and public funds were used to create that election ploy, contrary to the BC Standards of Conduct that govern what civil servants can do while on the job. Documents recently obtained by Focus through an FOI, and our independent analysis of a consultant’s report done for the Ministry of Energy, Mines and Natural Gas days before Premier Clark announced the Prosperity Fund in February 2013, suggest that might be the case.

The documents (download from link at end of story) suggest that an initiative to produce reports from independent consultants who would validate the potential for large revenues and massive job creation from LNG projects was launched only a month before Premier Clark announced the Prosperity Fund. The initiative appears to have been overseen by Assistant Deputy Minister of Finance Doug Foster. Foster outsourced the work to three private firms and delivered the numbers for Clark’s speech only days before it was made. Foster appears to have been reporting to Neil Sweeney, Deputy Minister, Corporate Policy in the Premier’s Office.

The report that provided the numbers was authored by Grant Thornton LLP (download from link at end of story), a prestigious accountancy firm with world-wide operations. Grant Thornton’s report allowed the Premier to say in her February 2013 throne speech, “LNG development is poised to trigger approximately $1 trillion in cumulative GDP within British Columbia over the next 30 years and that means more than $100 billion will flow directly to the Prosperity Fund. Province wide, LNG is expected to create on average 39,000 annual direct, indirect and induced full-time jobs during a nine-year construction period. As well, there could be as many as 75,000 full-time jobs required once all LNG plants are in full operation.”

 

Was the report credible?

Before I tell you exactly what was in those emails, let me tell you why we were looking for them and how they came into our possession. Back in February 2013, all we knew was what the Premier said in her speech. For many of us it was the first time we had heard “LNG.” After Clark’s government had delivered its election budget, it released two reports—one authored by Grant Thornton and the other by Ernst & Young—that purported to validate the LNG revenue projections underpinning Clark’s Prosperity Fund. Oddly enough, those reports didn’t contain any job creation numbers.

Throughout the subsequent election campaign, Clark had repeatedly stressed her plan would create “100,000 jobs for BC families.” But where did those jobs come from?

After the election, inquiries to the Ministry of Energy, Mines and Natural Gas about the  LNG job figures used by Clark revealed that a third report, also by Grant Thornton, had provided the mathematical substance for the previously released studies of potential LNG revenues. But this report had been secreted away. There wasn’t a single reference to it in BC media coverage of the election. The Ministry sent us a link to its hiding place.

After we read the report, which had the deceptively simple title Employment Impact Review, Focus filed an FOI for the record of communications between the Ministry of Energy, Mines and Natural Gas and Grant Thornton as they developed the study. The report contained many warnings to the reader that it was based entirely on assumptions provided by “the Province and its advisors.” We wondered who those “advisors” were and whether the Province and its advisors had pushed the process toward some desired outcome.

There was good reason to believe they had. Grant Thornton had arrived at questionable conclusions in its report. For example, it had checked the validity of a key assumption provided to them by the Province and its advisors by comparing it with the Australia Pacific LNG project, which was being built in Queensland. Grant Thornton concluded the assumption was supported by the Australian  numbers. There were, however, problems with how they applied the Australian comparison.

In its commentary about the comparison, Grant Thornton noted the ratio of direct jobs to tonnes of product for BC was only “slightly higher” than the Australian case. “Overall,” they concluded, “the estimates are comparable.”

Actually, the BC ratio is 36 percent higher than the Australian number. If BC’s significantly higher number had been adjusted to actually be “comparable,” 36 percent of the direct jobs in the assumption would have vanished.

Another of those key assumptions was that a capital expenditure of $98 billion in BC would create the capacity to produce 82 megatonnes of LNG per year. That, too, seems to be unreasonable.

Australia Pacific is a two-phase, $35 billion project expected to eventually produce 16 megatonnes annually. At that ratio of capacity per dollar of investment, the Province’s assumed $98 billion would only create capacity for 45 megatonnes per year. Yet Grant Thornton had accepted that $98 billion would build 82 megatonnes of capacity.

Australia Pacific’s likely costs, by the way, are significantly lower than BC’s would be: Australia Pacific is building a substantially shorter pipeline and will sip on coal seam gas, not shale gas. Coal seam gas doesn’t require drilling horizontal wells and fracking, so the wells for Australia Pacific LNG are about one-third the cost of wells in northeast BC.

Grant Thornton’s estimation of long-term employment is also puzzling. According to an extensive study by KPMG of the $35 billion Australia Pacific project, ongoing operations of the LNG plant would employ 325, the pipeline 20 and the gas fields 520. Extrapolating from that example, a $98 billion project in BC would create 910 long-term operational jobs at LNG plants, 56 pipeline jobs, and 1456 gas field extraction jobs. That’s direct, long-term employment.

If the pertinent BC Stats Input/Output Model multipliers are applied to these long-term employment figures, the total number of long-term jobs—direct, indirect and induced—rises to 21,000.

It’s difficult to see how Grant Thornton arrived at the conclusion $98 billion would bring 75,000 long-term full-time jobs to the province.

It seemed possible, then, after analyzing the Grant Thornton study last May, that the process of creating the report might have been pushed to create a 100,000-jobs election platform rather than function as a careful and reasoned analysis of the potential for LNG to produce jobs in BC. If it was the former, had taxpayers paid for a Liberal campaign expense? If it was the latter, why had the jobs report been kept in a drawer during the election?

 

FOI adventures

We filed that FOI for communications between Ministry employees and Grant Thornton in May of 2013. But the FOI was assessed a very high fee by the Province, which Focus declined to pay. Our efforts to ask for fewer records were thwarted by a Ministry information gatekeeper who said he would help but didn’t.

So we FOIed instead for records that should have been slam-dunk easy for the Ministry to find: the “Documents and information relied upon” listed in the Grant Thornton report. Most of the entries on that list had been provided, Grant Thornton said, by “the Province and its advisors.” It defined “Province” as “the Ministry of Energy, Mines and Natural Gas.”

We were again rebuffed by the Ministry’s information gatekeeper, who, this time, refused to respond to our request. To make a long story short, the Office of the Information and Privacy Commissioner ordered the gatekeeper—under threat of a $13,000 fine—to release the record.

The package we received in early February 2014 was surprising: It contained none of the “documents and information relied upon” by Grant Thornton. We protested. Then, through the mediation of OIPC, the Ministry revealed it had no such information in its custody and control. How could the Ministry not have the information Grant Thornton claimed the Ministry provided?

What the Ministry seemed to have provided, however, were the communications we originally requested last May: emails between high-level employees of the Province, their “advisors,” and employees of Grant Thornton. Fifteen pages of the records were fully severed on the claim of “cabinet confidences.” The emails were copied from the files of Brian Hansen when he was Assistant Deputy Minister of Energy, Mines and Natural Gas. (Hansen is now Assistant Deputy Minister and Lead Negotiator, LNG Task Force, Ministry of Natural Gas Development).

Hansen’s email record explains why his Ministry didn’t have the information Grant Thornton said the Ministry had provided: The information had come entirely from outside of government.

 

Cooking with gas

Hansen’s emails show that Assistant Deputy Minister of Finance Doug Foster first contacted Grant Thornton and Ernst & Young on or about January 11, 2013 to enlist their professional services in developing reports that would project revenues that might flow to the Province from an LNG industry in BC. About a week later, Foster realized employment projections would also be needed.

So on Sunday, January 20, Foster emailed Patti Daum of Grant Thornton’s Vancouver office. Grant Thornton describe themselves as “a leading Canadian accounting and business advisory firm, providing audit, tax and advisory services to private and public organizations.”

Foster asked Daum, “Is it possible that GT may be able to answer the following?” Foster wanted to know how many direct and indirect jobs might be created by “five to seven LNG plants/pipeline projects into the future.”

Fifteen minutes later, Foster fired off another email, this time to André Powell, a partner in The Deetken Group, a business consultancy firm in Vancouver. Deetken describe themselves as providing “services to a broad range of private sector, venture capital and public sector organizations,” including “energy infrastructure and markets.” Foster’s email to Powell said, “You have been copied on my communiques to EY [Ernst & Young] and GT... Can you begin preparing presentations that combine the work of Deetken and those of EY and GT? [I] think (in fact know) we will need these this week. Also, we will need to incorporate employment forecast to the extent that we can get these from third parties too. Can you let me know your thoughts?”

Later that day, Powell emailed Foster: “...with respect to employment, we have estimates of direct labour (mostly from proponents) and have developed estimates of indirect and induced [jobs] using [input/output] multipliers. This analysis might be a good start and accelerator for EY and/or GT’s work. Happy to package this for them.”

On January 23, following conference calls (referred to in the emails) involving Foster, Powell and Grant Thornton employees, Doug Bastin, a partner in Grant Thornton’s Vancouver office, emailed Powell an eight-point list of information he wanted, which included LNG plant sizes and capacities, production volume estimates, development costs, project timing, and direct, indirect and induced employment estimates. Note that Bastin asked Deetken for this fundamental information; he didn’t ask Foster or Hansen. But Bastin did copy his request to both Hansen and Foster.

Later that day Powell emailed Bastin: “We are currently pulling this data together and will get it to you by end of today.”

On January 26 Powell emailed Hansen with an update, noting: “With respect to employment, we had a call yesterday and we have provided additional details; also BC Stats are helping them; GT said they will shoot for Friday [February 1] next week for results.”

Late on February 4, Powell, after considering Grant Thornton’s draft report, emailed Doug Foster four suggestions, copied to Hansen. Powell’s suggestions included: “We should remove all reference to ‘proponent’ information, this should be described as data provided by the Province and its advisors developed from industry benchmarks and other sources.” Powell added that removing all reference to proponent “should also apply to E&Y’s final report.”

If any of Foster, Hansen or Bastin raised any objections to this apparent switch in the attribution of the source of some of the information Grant Thornton was using, it does not appear in the records Hansen provided. In the final report, as mentioned above, Grant Thornton credited assumptions and information to “the Province and its advisors.”

Late on February 4, just 8 days before Premier Clark announced the Prosperity Fund, Hansen emailed Powell: “On the jobs and revenue and the GT and E&Y work, are we close to being [ready] to advance some validated metrics? I ask as there is a meeting tomorrow with folks from the centre around these metrics and I assume Doug [believed to be a reference to GT’s Doug Bastin] is close to finished.”

Early the next day Powell replied to Hansen: “The GT labour market work is almost ready, we are on a call with them this morning to make some changes/updates to their work. EY is not intending to provide labour market forecasts. For your meeting this [morning], I would go with the GT numbers as provisional/work in progress.” Powell then listed numbers which are virtually identical to estimated LNG employment figures presented in Clark’s Speech from the Throne on February 12, and in the 2013-2014 BC Budget.

Early on February 6, with less than a week before Clark would announce the Prosperity Fund, Deputy Minister to the Premier Neil Sweeney emailed Foster and Hansen and asked: “Guys, can we get the actual drafts from GT and the other folks?” 

Foster emailed back: “Neil, the drafts are in various stages and continue to evolve due to:” and then Foster listed three issues that were causing delays, including: “Reviews by them [presumably “them” refers to GT and E&Y] to ensure that details are removed to protect proponent information sources...” 

 

Who provided what to whom?

Focus emailed Deetken’s André Powell, Grant Thornton’s Doug Bastin, and the Province’s Doug Foster questions about how the Grant Thornton reports were developed. Neither Bastin or Foster responded to emails.

I asked Powell why he had suggested removing any reference to “proponent” information from the final reports and instead suggested attributing all information to “the Province and its advisers developed from industry benchmarks and other sources”.

Powell said, “[T]he proponents did not provide information to GT and EY. To state otherwise in the final report would have been inaccurate and I therefore provided a corrected description for inclusion in the final document.”

Powell added,“In providing information and assumptions to the consultants (GT and EY), Deetken considered a variety of sources. This included aggregated information from proponents, industry benchmarks and other research and analytics.”

Powell explained that “Deetken used aggregated information collected on the Province’s behalf to assist it in evaluating other information it had already compiled as to reasonableness before passing specific assumptions to the consultants. The consultants [Grant Thornton and Ernst & Young] themselves were also free to accept or adjust such received information based on their own analysis and research of industry information.”

Powell confirmed that “Deetken was not under contract with any LNG proponents or developers at the time the report was developed.”

With the “Province” claiming it had none of the information Grant Thornton said it had, Deetken seems to be the sole source of information used by Grant Thornton, aside from their consideration of the Australia Pacific project. Deetken’s information, then, provided the fundamental basis for Clark’s Prosperity Fund and her successful election campaign. 

Powell’s explanation of why he wanted aggregated information from proponents to be given a more opaque attribution is that no specific information from individual proponents was included. Fair enough. But how could the public interest be served in this taxpayer-funded exercise without transparency and accountability? Asking Encana, for example, for objective information about how many drilling jobs an LNG industry would create is like asking Goldman Sachs whether reducing regulation of investment banking would be good for the economy.

By disguising the source of the information, the exercise became political.

And, as mentioned earlier, the numbers seem to have been manipulated, or "fudged," as British Columbians prefer to put it. 

Grant Thornton, Deetken and Foster seem to have created, intentionally or not, a “fudge-it budget” for LNG.

For whose benefit were such arithmetical indiscretions performed? Well it wasn’t for Adrian Dix’s sake.

 

Is fudging the numbers political activity?

You might recall the scandal the Liberals were embroiled in just before the last election involving public service employees doing partisan work on the job. The Deputy Minister to the Premier John Dyble wrote a report about that affair in which he said the public service oath “expressly includes the Standards of Conduct, and requires public servants to conduct themselves in a manner that maintains and enhances the public’s trust and confidence in the public service.”

The BC Standards of Conduct state, “Employees must not engage in political activities during working hours or use government facilities, equipment, or resources in support of these activities.”

If a public service employee oversees development of a study, and if that study misrepresents the facts about the employment potential arising from LNG development in the province, and that misrepresentation then becomes the political position of the governing party seven days later—and the key component of their election campaign—was that employee engaging in political activity during working hours? Did he conduct himself in a way “that maintains and enhances the public’s trust and confidence in the public service”?

This is a question that Premier Clark needs to answer, or democracy will continue to wither in BC.

David Broadland is the publisher of Focus Magazine.

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FOI NGD 2013 00037.pdf8.53 MB
Grant Thornton LNG Employment Impacts.pdf222.16 KB