Boreal

SHOOTING THE MESSENGER

An Appalling Indiscretion

When I came back from lunch she wasn’t there. "Where is she?" I asked Arthur. When he told me, I only felt a twinge of remorse. That would change. It wasn't my decision, after all. It wasn't even Art's. I had told Art, who had told the chairman, who had told Art what to do, or so Art told me. Only years later would I fully appreciate the pain and humiliation I must have caused.

The Energy Supplies Allocation Board (ESAB) was part of the Trudeau Government’s commitment to what it called a Made in Canada Price for Oil. This initiative took on a new urgency after the first energy crisis in 1973 which saw OPEC prices for crude more than double. Eastern Canada got most of its oil from OPEC; the pipeline carrying oil from Alberta stopped at Sarnia in southern Ontario. If nothing was done, most of Ontario, Québec and the Maritime provinces could expect to pay a lot more for oil, while Western Canada would continue to enjoy low prices. Something had to be done.

Trudeau had a number of options:

1. He could allow Alberta to sell its oil at the world price to Canadians from A Mari usque ad Mare and everyone in Canada would pay an exorbitant price, as they do today, for a resource they ostensibly owned.

2. He could extend the Sarnia pipeline to Montréal.

3. He could use the new revenues from the sale of oil to the United States at world prices to pay oil companies who supplied Eastern Canada from the Middle East and Venezuela to keep the price of oil below the world price and relatively equal across Canada.

Alberta did not have the disproportionate clout it has today. For Trudeau to allow Alberta to take a page from OPEC, doing to Canadians what OPEC was doing to the rest of the world was unthinkable. Option number one, for a nationalist like Trudeau who believed in a strong central government, was no option at all.

Option number two was even less palatable for it meant not only upsetting Québec voters, but stoking the paranoid fears of the separatists. Extending the Sarnia pipeline would have threatened jobs in the East End of Montréal where a large refinery complex processed most of the imported crude for Eastern Canada. It would also have made the province of Québec dependent on Western Canada’s oil, inviting more separatist rhetoric about a federalist plot to make Québec dependent on Western crude for its economic survival. He chose the third option—the most costly in dollars and cents, but the least costly politically.

For what Canada paid the oil companies in one year alone under the Oil Import Compensation Program (OICP) administered by ESAB, the country could have paid for an extension of the pipeline to the Atlantic coast with a few hundred million dollars to spare. During the year I was with ESAB, it paid out approximately a billion and half dollars (at least four times that in today’s dollars) under the OICP.

The oil destined for the Eastern Canadian market arrived at two main points of entry: Portland Maine (the start of the Portland-Montreal pipeline) and the refinery at Come-by-Chance, Newfoundland. Every morning I received documents, usually by fax, on the amount of oil delivered to Portland and/or Come-by-Chance. Using these documents, a colleague and I calculated the amount of compensation due. Cheques were deposited in the oil companies’ bank accounts that same day—you just don't leave cheques for ten and twelve million dollars lying around. All the companies that supplied Canada with OPEC oil were foreign-owned.

Before the Canadian Government decided to subsidize oil companies to make up for the difference in domestic and international oil prices, a large portion of Canada’s oil imports were from Venezuela. After the subsidies began, oil destined for the Canadian market from this South American country was diverted to the American market, and oil from the Middle East whose final destination would ordinarily have been a United States port ended up in Canada. Why?

Tankers have to burn oil to get the oil they are carrying to its destination. The carrier was assumed to have paid the international price for this bunker crude (the cheap oil that powers most tankers). There was money to be made burning as much bunker crude as possible if the oil your tanker was carrying was destined for the Canadian market. All of a sudden, oil companies could not find places far away enough for crude destined for the Canadian market. Before you knew it, Canada was getting next to no oil from Venezuela, with Canada’s traditional supplies going to the United States instead.

To the Board’s credit, when the subterfuge became known, the formula for compensation for bunker crude was amended. Compensation would be paid based on traditional delivery routes, before the creation of the Energy Supply Allocation Board. Canadian taxpayers would no longer be subsidizing, to the tune of millions of dollars every month, American oil imports. Exxon could claim its oil came from the moon; it would get compensated for oil burnt in transit as if it came from Venezuela. Burning bunker crude at Canada's expense was just companies taking advantage of a loophole in a law—unethical, but not illegal. This is not to say that nothing illegal was going on.

On a regular basis, our registered accountant and auditor, who was also my boss, would travel to every oil company's head office in the United States to confirm that the documents submitted as justification for billions of dollars in compensation were legitimate. It was during a visit to the New York offices of the owners of the refinery at Come-by-Chance that he discovered claims paid out for more than 30 million dollars of oil that had never been delivered.

There was no secret about what went on at ESAB; it was a small organization, 30 employees, maybe less. I should have known that when the secretary asked, "What if the press got a hold of this?" she was just doing what everybody else did: indulging in idle, somewhat pointless speculation and gossip. I told Arthur what the secretary had said about "the press getting a hold of this.” When I returned to work after lunch, she was gone.

When the guards came for me, I imagined what it must have been like for her. This made me feel both better and worse. Better, because in a way I felt it was what I deserved for that appalling indiscretion—poetic justice and all that; worse, because I imagined what was happening to me happening to her.

The Board not only moved quickly to fire the secretary, but to obtain an Order-in-Council to seize the oil in the next ship to dock at the Come-By-Chance refinery. The whole affair almost became known when the RCMP seized the tanker, after the oil was unloaded, something they were not supposed to do. They were persuaded to give it back before the Panamanian or Liberian owners of convenience complained. No one was ever prosecuted and, as far as I am aware, charges were never contemplated.

Prior to the Board winding down its operations, all term employees were placed on the government's priority hiring list. Before any department could hold a competition, it had to consult this list to see if anyone on the list met the qualifications for vacant positions within their organization. If they did, they could be appointed to a position without an open competition.

This list was usually reserved for permanent staff that, for one reason or another, saw their jobs phased out or, as was the case for the term employees of ESAB, deemed deserving of special consideration for a job well done. I was still with the Board when I got a call to report to the Surveys and Mapping Branch for a job interview with a John MacArthur.