Stephane Dion: Tomato Can

Stephane Dion is such a punchless opponent that the federal conservatives—hungry for a real fight—have taken on the liberal provincial government in Ontario, too.

Dion lurched into last week’s parliamentary by-elections with about as much momentum as he’s been able to muster during his leadership.

He had passed up several recent opportunities to fight Harper’s minority government on significant policy grounds. Ending Canada’s combat role in Afghanistan was one of Dion’s only coherent, consistent stands on any major issue, but he hammered out a deal, perhaps wisely, that will keep Canadian forces in Central Asia. However, his failure to challenge Harper’s budget, particularly as evidence mounts that Canada’s economy is slowing because of US difficulties, is inexcusable.

Cadscam and NAFTAGate, however, exposed the Tories’ seamier side and gave Dion an opening. A more nimble politician would have raked his opposite number over the ethical coals, especially one who rode Liberal corruption (the sponsorship scandal, stock tips) to power. 

Voters in four ridings–the Canadian equivalent of a congressional district–chose candidates to fill vacant seats in Parliament. All four had been held by the Liberals.

They maintained three and lost one to the Conservatives, a gaudy 0.75 winning percentage. But consider: In the Vancouver, British Columbia, Quadra riding, the Liberal candidate won by 151 votes. The Liberals have held the seat since 1984, and in 2006, the winning Grit cruised to Ottawa on an 11,000-vote margin.

And this: In the Saskatchewan Desnethe-Missinippi-Churchill River, Dion’s candidate, Joan Beatty, lost the seat. Conservative candidate Rob Clarke won by a margin of 17 percent. Clarke captured 48 percent of the vote, while Beatty got 31 percent.

The riding was considered to be the least predictable because the Liberals only took the seat by 67 votes in the 2006 federal election. But Beatty, a former New Democratic Party cabinet minister, was handpicked by Dion.

If Barack Obama is the indescribable “it,” Stephane Dion is “not it.”

The most direct path to trust tax liberation was a great start by Dion. He had to come in and demonstrated to Canadians an alternative: to oppose.

But just yesterday, again, he gave the answer he’s given to every Harper haymaker. On the question of plans to give Canada’s Immigration Minister more power to decide who gets to stay in the country tucked into a 136-page budget implementation bill, Dion withheld comment.

The Liberals have promoted themselves as the party of immigration, and they have many seats in urban areas where they draw heavy support from immigrant communities. But budget bills are confidence matters, and Dion is unwilling to take down the Conservative minority despite numerous opportunities. The Liberals have said they don’t agree with the Conservative immigration plans, but Dion will likely rest on the ropes.

Immigration Minister Diane Finley, by contrast, told CTV’s Question Period yesterday that she is “absolutely” prepared to fight an election over the issue.

Canadians haven’t fallen for Harper, but his has become Canada’s longest-standing minority government ever. There was talk among Liberal insiders that the party would use last week’s by-elections as a springboard to a federal election, but those conversations have ended. 

There’s good news, however, for those of us interested in the income trust tax issue: Diane Francis of the Financial Post suggested it cost the Conservatives the Vancouver Quadra seat:

There remains trouble in Toryland over finance minister Jim  Flaherty’s non-sensical tax on energy trusts and the income trust debacle cost the party a by-election in B.C. this week. Its candidate cited income trusts as the major concern in the election. It is an issue that simply will not go away because it should not. Prime Minister Stephen Harper, at Flaherty’s urging, reneged on a firm promise which  is good leadership.

The issue is the single biggest reason why the Tories have not, and cannot, get a majority in the polls. Their foolish and flawed flip flop against trusts devastated and alienated their base.

Had it happened, and it came down to 151 votes, Dion would be toast.

The Liberals held two Ontario seats. In Toronto Centre, once (and future?) Dion rival Bob Rae cruised to victory; another potential Liberal leadership challenger, Martha Hall Findlay, who stood for the post during the process that left Dion standing, won handily in Willowdale.

Finance Minister Jim Flaherty challenged Ontario Premier Dalton McGinty to reduce taxes on businesses in a new budget to be revealed today.

“For every dollar in business tax reductions, two dollars are generated in new investment,” Flaherty said in Toronto, where he held a press conference to outline what he wants to see in Ontario’s fiscal plan. Flaherty has said McGinty’s economic policies and corporate tax rates in the province discourage business in Canada’s industrial heartland and described Ontario’s business taxes as the highest in the country.   

Flaherty’s going after McGinty on the provincial budget because the conservatives have to pick up seats in Ontario. They haven’t leveraged gains made in Quebec in the February 2006 election gains, and Canada’s largest province represents the best chance to build a majority. But they lost by wide margins in two urban ridings there last week.

This could be Harper’s purpose pitch, his way of letting the voters know he plays hardball. Laying the blame for Ontario’s stagnant economy at Liberal feet, federal or provincial, by suggesting the corporate tax rate is too high may be the way the Tories have chosen to working-class hearts.

The most recent Strategic Counsel poll shows the Conservatives have an 11-point lead over the Liberals. The Tories are at 38 percent, compared to 27 percent for the Liberals.

The Conservatives rode to power on Liberal corruption, heralding the arrival of Canada’s New Government with every press release. A little linguistic flourish aside, Harper’s Tories have failed to capture enough imagination to establish a majority government.

But compared to Dion, Harper floats like a butterfly and stings like a bee.

Speaking Engagements

It’s time: Vegas, baby! Neil, Elliott and I will head to the desert paradise May 12-15, 2008, for the Las Vegas Money Show at Mandalay Bay. Go to www.lasvegasmoneyshow.com or call 800-970-4355 and refer to priority code 010583 to do the “what happens here stays here” thing as my guest.

The Roundup

Oil & Gas

Canadian Oil Sands Trust (TSX: COS-U, OTC: COSWF) cut its first quarter output forecast by 17 percent to account for production problems in January and February. The trust expects output from Syncrude to be 24 million barrels for the period, down from a previous forecast of 29 million. Output is expected to average 265,000 barrels per day (bpd) in the current quarter, down from a capacity of more than 350,000 bpd.

It also cut its full year outlook to 108 million barrels from 115 million, about 296,000 bpd. Syncrude suspended production in late January when instruments froze up in minus 40 degrees Fahrenheit weather.

The trust is currently gauging the impact of the shortfall on operating costs and capital spending; it expects to release the results of the assessment in late April. Canadian Oil Sands owns 37 percent of Syncrude. Canadian Oil Sands Trust is a buy up to USD45.

Provident Energy Trust (NYSE: PVX, TSX: PVE-U) reported net income for the fourth quarter of CAD68.6 million (28 cents Canadian per unit), reversing a net loss of CAD25.5 million (12 cents Canadian per unit) a year ago. Fourth quarter funds flow from operations climbed to CAD177.6 million (72 cents Canadian per unit), up from CAD122.7 million (58 cents Canadian per unit) in the fourth quarter of 2006.

Distributions declared increased 18 percent to CAD89.1 million from CAD75.6 million. Revenue declined 1 percent to CAD541.9 million from CAD548.1 million.

Production for the quarter averaged 48,200 barrels of oil equivalent per day (boe/d), up from 33,800 boe/d on acquisitions made in Canada and the US. Provident’s midstream segment generated income of CAD89 million, up 20 percent from CAD74 million a year ago.

For 2007, Provident reported net income of CAD30.4 million (13 cents Canadian per unit), down from CAD140.9 million (72 cents Canadian per unit) in 2006. Full-year funds flow increased 8 percent to CAD468.3 million (CAD2.04 per unit), compared to CAD432.7 million (CAD2.20 per unit) in 2006.

Revenues for 2007 totaled CAD2.17 billion, down 1 percent from CAD2.19 billion in 2006. Production for the year was up 22 percent to 38,600 boe/d. Full-year midstream income amounted to CAD226 million, up from CAD220 million in 2006. Provident Energy Trust is a buy up to USD14.

Gas/Propane

Trinidad Drilling (TSX: TDG, OTC: TDGCF) fell more than 17 percent Monday following some strange trading activity into the close Thursday, March 20, when the shares surged 30 percent in the last minutes of the session. There was no material event, contract win, takeover rumor or any other corporate initiative driving Thursday’s increase.

Because there was no material event, the return to a true market price was normal on Monday. The shares climbed around USD3 from the USD11 to USD11.20 range in Thursday’s final trading moments, probably because of a combination of index rebalancing and human error. Trinidad Drilling is a buy up to USD14.

Business Trusts

North West Company Fund (TSX: NWF-U, OTC: NWTUF) reported earnings growth of 15.7 percent to CAD18.9 million (39 cents Canadian per unit) for its fourth quarter, which ended Jan. 31, 2008, from CAD16.3 million (34 cents Canadian per unit). Sales increased 21.1 percent to CAD318.0 million compared to the fourth quarter last year.

The fund also announced an increase in its quarterly distribution of 18.5 percent to 32 cents Canadian per unit to unitholders of record on March 31, 2008, distributable by April 15, 2008. North West Company Fund is a buy up to USD20.

Real Estate Trusts

Artis REIT (TSX: AX-U, OTC: ARESF) reported fourth quarter funds from operations (FFO) rose to CAD12.3 million (39 cents Canadian per unit) from CAD4.6 million (30 cents Canadian per unit) a year ago. Distributable income increased to CAD12.7 million (41 cents Canadian per unit) from CAD5.2 million (34 cents Canadian per unit) during the fourth quarter of 2006.

Revenue for the recently concluded quarter was up 93.2 percent to CAD31.9 million from CAD16.5 million. As of Dec. 31, 2007, mortgage debt-to-gross book value decreased to 49.2 percent from 52.1 percent on Dec. 31, 2006.

The REIT’s occupancy rate increased throughout 2007 to 97.4 percent from 95.8 percent. Artis REIT is a buy up to USD18.

Natural Resources Trusts

Royal Utilities Income Fund (TSX: RU-U, OTC: RYUTF) is being bought out by Canada-based Sherritt International (TSX: S, OTC: SHERF) for about CAD700 million. Sherritt already owns 41 percent of Royal and has offered to buy the rest for CAD12.25 a unit, a premium of 22 percent over Royal Utilities’ March 17 closing price of CAD10.03; Sherritt will use Royal’s cash flow to expand its coal and other resource production.

Royal holds all the common shares of Prairie Mines & Royalty, a thermal coal producer, and has mineral rights in Alberta and Saskatchewan that generate royalties from coal and potash mining. Royal unitholders will have the option to receive cash, 0.80 of a Sherritt common share or a combination of the two, with a maximum of CAD225 million to be paid in cash.

The transaction is expected to close in late April. Hold Royal Utilities Income Fund.