Page 64 - Azerbaijan State University of Economics

Fariz A. Guliyev: The economics of financial securities for environmental obligations and
their impact in royalty revenues from Alberta oil sands in North America

create substantial fluctuations in royalty revenues. For example: Qualifying Environmental Trusts

are deductible for both, tax and accounting purposes. When QETs are used by Approval Holders

they deduct their QET amounts as allowed costs the end result of which is reduced royalty

payments. Whereas, Letters of Credit are not tax deductible which means there is no disadvantage

for the government when LOCs are used by Approval Holders. However, companies have choice

as to which security to use. By exercising it they can plan their costs and have impact on annual

budget commitments of the government. The paper discusses these nuances in detail in section 3.2.

A breakdown by operators in Oil Sands mine areas is provided in Figure3. As depicted in

Figure3, Suncor and Syncrude has put in place a huge reclamation work. Let us note that

reclamation certificate is not granted to Approval Holders immediately. Certain period must pass

before a reclamation certificate is finally granted. Syncrude Canada has been issued a

reclamation certificate for 104 hectares of reclaimed land. Such practice is ongoing and will

continue in the future too. However, there are huge areas that are disturbed at present and will

need to be reclaimed and returned to the province.

At present, reclamation technology is inefficient and costly to operators. It is mainly

mechanical and some chemical processes that requires strict commitments from Approval

Holders. For example, it takes around 20-30 years to place soils, neutralize sulfur content and re-

vegetate the mine area as per approved plans. Despite all these difficulties extensive research and

development activity is taking place for mine reclaimable sites. Newly created corporative

efforts are aimed at addressing these issues. Canadian Oil Sands Network for Research and

Development (CONRAD) and Cumulative Environmental Management Association (CEMA)

are good examples. CEMA defines criteria for Approval Holders to meet the reclamation

requirement set by the government. Although efforts to create new reclamation techniques are

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