Proposed law would allow co-operation in energy purchasing
Energy firms would be able to consult each other on project timing, to allow them to balance spending and help prevent cost overruns.
NATHAN VANDERKLIPPE
CALGARY —
Tuesday, Jun. 30, 2009
Globe and Mail.
Canada's energy giants could be allowed to consult each other on new oil sands projects, a key change that would give them greater purchasing power to help prevent cost overruns and speed construction timelines.
Under a draft proposal distributed by the Competition Bureau, firms would no longer face criminal conspiracy charges for co-operating on the construction of new megaprojects. Instead, only collusion on price-fixing, market selection and output volumes will be considered immediate criminal offences under new regulations that are set to come into effect next March.
The new rules would give all of Corporate Canada permission to team up with competitors to negotiate with suppliers. For the country's industrial purchasers, the proposed rules constitute a significant redrawing of the way companies are allowed to work together.
Under current law, competitors can be held criminally liable for conspiring on purchases that “unduly” restrain competition. Officers and directors that fall afoul of that rule can be put in jail, and the maximum fine per offence is $10-million.
Under the new rules, such collaboration would fall under a less-threatening civil law, which provides an important new defence: Companies will now be able to argue that their actions are not anti-competitive if they create substantial industrial efficiencies.
“It's a huge win for buyers of services, because they can now collude, if you want to put it that way,” said Anthony Baldanza, who chairs Fasken Martineau's antitrust/competition and marketing law group. “But if you're a seller you're going to be facing more powerful purchasers than in the past.”
The new rules are especially pertinent to the oil sands, where some operators have taken the unusual step in recent months of calling for a more co-ordinated effort to build the massive energy projects planned for the Fort McMurray area.
“It's just a matter of organizing ourselves so we don't [compete] directly head on head,” Steve Laut, the president and chief operating officer of Canadian Natural Resources Ltd., said in early May. “You don't want everyone doing civil work at the same time or electrical work at the same time, you need to stagger the project, even though they're concurrent.”
Companies are eager to avoid a repeat of the huge buildup in costs that peaked when oil prices hit nearly $150 (U.S.) last summer. Between 2000 and 2008, the price of building an oil sands project tripled, in great part because demand for labour produced huge price spikes. At Canadian Natural's Horizon project, the squeeze drove up costs by $3-billion.
Under the new competition law, however, companies can get together to, among other things, plan construction schedules – provided the Competition Bureau does not find that such collaboration slows the pace of development, and therefore influences output or price.
“We can get together now” to stagger project development, said Greg Stringham, the vice-president of markets and oil sands at the Canadian Association of Petroleum Producers. “It really does provide an enabling factor.”
The Canadian Bar Association has criticized the new rules for a separate provision that makes certain conduct automatically illegal, where before an anti-competitive effect had to be proved. That could damage existing bidding arrangements, banking syndications, joint ventures and “non-compete” agreements, the association said.
And even companies that might benefit from the bureau's new purchasing freedoms are likely to tread carefully, since any hint of conspiracy allegations can be damaging to a corporate reputation.
But there is enough interest by the oil patch that, when the Competition Bureau came to Calgary for a consultation on the new rules two weeks ago, lawyers asked whether it could clarify how the rules specifically affect the oil sands, said Colin MacDonald, a competition lawyer with Borden Ladner Gervais who was at the meeting.
Mr. Baldanza warned that allowing purchasing collusion could have an especially pointed impact on labour.
“What this means is that the labour folks can be looking at aggregations of petroleum companies buying their labour services at, in theory, lower prices,” he said.
But the mad construction scramble of Alberta's last boom remains fresh enough in even labour's eyes that a more logical, co-ordinated effort at building new projects might make sense.
“This drastic feast or famine that we've seen where all of these clients try to build their projects at once when things are good, and then when things are bad everybody pulls back at the same time – it's very difficult,” said Wayne Prins, the Fort McMurray regional director for the Christian Labour Association of Canada, which is the largest construction union in that part of the province.
“We have even had discussions in the past saying that a more ideal situation would be if there was some co-ordination between the owners to line their projects up so it was more of a sustainable pace of work.”
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