Higher energy royalties are likely, but companies will have time to adjust to changes, he tells province

CALGARY -- Alberta Premier Ed Stelmach is bowing to intense oil industry pressure on the controversial issue of higher energy royalties, telling Albertans last night that some increases are likely so citizens get their "fair share," but promising companies "time to adjust to the changes."

"[The new royalty system] will provide the stability

and predictability business needs and time to adjust to the changes," Mr. Stelmach told Albertans during a televised address, in what was the defining speech of his young premiership as he hopes to keep a 36-year Progressive Conservative dynasty alive.

Mr. Stelmach's general position - with details to be released this afternoon - distances the government from a landmark independent report released last month after months of public hearings, which concluded that Alberta has been missing out on billions of dollars of energy revenues.

The report recommended the immediate imposition of significantly higher royalties on oil, natural gas and oil sands - a 20-per-cent increase in royalties and taxes that could add up to an additional $2-billion annually.

Energy companies argued that the recommendations, if adopted in full, would precipitate an economic "catastrophe."

They caustically threatened to immediately withdraw billions of dollars of spending from Alberta, predicting thousands of job losses.

Mr. Stelmach's move on royalties is one of the most important economic decisions in Canada this year, with reverberations to be felt countrywide, and if his television address goes over well in the coming days, a snap election could be likely, though the Premier gave no hints on that possibility.

"Ed Stelmach had an opportunity to inspire Albertans and he failed," said Kevin Taft, leader of the Opposition Alberta Liberals.

The speech had "no new vision," according to Keith Brownsey, a political scientist at Mount Royal College in Calgary, adding that it was a reworked version of things Mr. Stelmach has said before.

"It was just profoundly vague," Mr. Brownsey said.

However, Ken Chapman, a political strategist and left-leaning Progressive Conservative party member, was "very impressed."

"[The Premier has] distanced himself from the old days and showed there will be a lot more accountability," said Mr. Chapman, principal at Cambridge Strategies in Edmonton.

Mr. Stelmach unexpectedly became Premier last December, coming from behind to win Ralph Klein's job, but under his leadership support for the Conservatives has sunk below 50 per cent for the first time in years.

Last night, he suggested there will be higher royalties in the oil sands but suggested rates on natural gas - the province's current main revenue source - would not be aggressive.

The province's Auditor-General, in a separate report on royalties on Oct. 1, came to the same conclusions as the royalty report, with both documents saying the energy industry would remain healthy even with higher costs. Industry last year booked the biggest profits in its history, led by No. 1 player EnCana Corp., whose $6.4-billion profit was the largest in Canadian history.

On Tuesday, the Alberta Liberals ended weeks of silence on the issue by coming out fully in favour of the royalty report, which calculated that its recommendations would have seen 2006 energy revenues in Alberta at $11.4-billion, 20 per cent higher than the $9.5-billion actually collected.

"I just don't feel this is the government that's going to stand up for Albertans," Mr. Taft said.

Polls of Albertans on royalties are mixed, suggesting Mr. Stelmach's apparent compromise could prove popular. About nine of 10 Albertans feel they are not getting a "fair share," but only about 55 per cent support higher royalties in the oil sands, which is the key point of debate. Regarding oil and natural gas pumped to the surface with conventional wells, about 55 per cent of Albertans believe royalties should remain the same or be lowered.