Volatile oil prices and the shock of COVID-19 cost the Sturgeon Refinery $795 million more than it had accounted for between January and March, Alberta's auditor general says.
Last Thursday, Auditor General Doug Wylie released a report detailing some $1.6 billion worth of accounting errors by the Ministry of Energy. The majority of that amount was related to the government's divestment of crude-by-rail contracts, and the Sturgeon Refinery.
The refinery error occurred because the Department of Energy and the Alberta Petroleum Marketing Commission (APMC), a government business enterprise, did not update the price forecast for the first quarter of this year – Dec. 31, 2019 to March 31, 2020, during which time the COVID-19 pandemic came on scene and oil prices plunged.
"Our concern here was that between Dec. 31 and March 31, a very significant group of events had taken place. And those (forecast) assumptions weren't updated, which clearly they should be," said Wylie.
The refinery is managed by APMC for the government and the North West Redwater Partnership (NWRP). Wylie said APMC updated its cash flow model once his office requested it, resulting in the $795-million adjustment. However, the updated model included an additional $121-million error, of which only $72 million was adjusted due to timing delays.
“It's clear to me that these and other findings, included in our report, demonstrate the importance of effective financial controls and oversight. Financial processes need to exist,” said Wylie. “And if they don’t, the public may not receive complete or accurate financial reporting. That's the overall theme that I see from this report.”
The government is in a 30-year tolling agreement with NWRP. Under this contract, the government is required to supply 75 per cent of the bitumen to the refinery, pay 75 per cent of the monthly service toll which will cost $26.4 billion over the 30 years.
Capital costs doubled
Over the past six years, the capital costs for the Sturgeon Refinery ballooned from an estimated $5.7 billion in 2014 to $10.1 billion as of March 31, 2020.
The refinery has seen many delays since construction began in 2013. These delays have resulted in the government making debt repayments on the facility before it was operational. However, the facility started processing bitumen on June 1.
There were four recommendations included in the auditor’s report for APMC. It was recommended APMC develop a process for risk management and have experts to manage business arrangements, and set performance measures and targets and compare them against the actual results.
Transparency was also recommended. The report suggested APMC make an annual public report available to Albertans when the commission sees fit and complete a lesson-learned analysis from its significant agreements.
