Page 66 - 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

the current year. This may be a result of more reclamation work done than Planned Reclamation

for the current year. Total amount of financial security is usually the sum of four deposits: BSD

+ OLD + ASFD + ORD. An exception occurs when the sum of four deposits exceeds the MFSP

Liability amount where the deposit balance is reduced to MFSP Liability amount.

As noted above in MFSP Liabilities section, Approval Holders must provide financial

securities based on two deposit types: Base Security Deposit and Operating Life Deposit.

With base security the amount is $30 million for an oil sands mine. If an upgrader exists on

the site then the base security is equal to $60 million as shown in table 3. Later, as an oil sands

mine reaches its reserve life left by 15 years the Approval Holder must set aside an additional

10% security per year. This is process of security buildup is shown under Operating Life Deposit

sub-heading at the end of the previous page. With less than six years left before the end of the

mine life a full amount of financial security is posted.

2.2. Types of Financial Securities

Forms of financial securities for MFSP can include(Forms of financial securities

mentioned in the paper is based on Section 21 of the Conservation and Reclamation Regulation)

cash, cheques to the Minister of Finance, debentures, government backed bonds, irrevocable

letters of guarantee, credit, performance bonds, term deposits, investment certificates and

qualifying environmental trusts. Any form of security must be accepted and approved by the

Director of Alberta Environment and Sustainable Resource Development.

The most common type is known as Letter of Credit and is broadly used to offset required

MFSP Liabilities. The other form of security is called Qualifying Environmental Trusts (QET).

QET are more complex in that their accounting and tax treatment entirely differs from that of

LOC. For example: an entire amount of QET security is deductible for both financial accounting

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