Business and Economy
Liquidity and cost deferrals provide easy options for government to help the energy sector, says Canadian Chamber of Commerce
Though battered by demand destruction and falling revenues, 60% of those who responded to the survey had planned to maintain their labour forces, with only 7% planning layoffs of 20-30% of their workforces.
(File Photo: Laurent Gass PHOTOGRAPHIE/Flickr, CC BY-NC-ND 2.0)
(OTTAWA, ON) – May 14, 2020 – Canadian Chamber of Commerce’s Director of Natural Resources and Environmental Policy, Aaron Henry, issued the following statement today regarding survey results of energy sector businesses amid COVID-19:
“The Canadian Chamber of Commerce has made it clear that Canada’s resource sector and, in particular the oil and gas sector, faces unique challenges from this pandemic. The federal government has simple, easy to execute options at its disposal to help.
The data from the recent Canadian Survey on Business Conditions, delivered in partnership between the Canadian Chamber and Statistics Canada, tells a story of a sector that is doing everything it can to adapt to a world turned upside down.
Consider that 90% of the resource sector businesses surveyed had either significantly reduced or frozen their expenditures, compared to 83% national average for all businesses.
When compared against revenue from January and March 2019, nearly 30% of respondents from the resource sector saw a decline in revenue greater than 50%, and 37.4% witnessed declines from 10% to 49%.
Though battered by demand destruction and falling revenues, 60% of those who responded to the survey had planned to maintain their labour forces, with only 7% planning layoffs of 20-30% of their workforces. We can infer two key policy issues from these statistics.
First, planned layoffs were recorded at much lower levels than other sectors because of the status of many resource operations as critical infrastructures, the already lean workforces adopted by the sector, and the significant benefit from the federal wage subsidy. Facing a longer low-price environment because of the global surplus generated by COVID-19, the government should extend and develop policies to support the sector until demand returns and stabilizes.
Second, liquidity remains a significant challenge for the sector. We cannot overlook that investment in the sector has remained subdued because of broader regulatory uncertainty and political risk, which Canada can no longer afford to ignore.
The recently announced LEEFF program is certainly welcome and should address some of these liquidity concerns. However, further targeted support may be depending on the details of the program, once public, and also how quickly demand for resources recovers as COVID-19 measures are lifted.
If we continue to see low demand, we would recommend the federal government explore further targeted measures to help energy, forestry and mineral producers.
There are many steps open to the government to further improve liquidity that are low-cost and do not entail further federal expenditures. For instance, government can improve liquidity for the energy sector by suspending costs like the levy on pipeline abandonment for the remainder of 2020 and allowing companies from all sectors to temporarily access capital held in ongoing audit investigation accounts by the CRA.
