Integration of natural resource
wealth in the Canadian National
Balance Sheet Accounts ─
Implementation challenges
Note by Canada
Natural Resource Wealth
 Canada has substantial reserves of natural
resources (NR)
- Energy and minerals in the ground
- Accessible stands of timber in forests
 In 2010, natural resource wealth—the dollar
value of selected resource reserves—stood at
$1.16 trillion
 Important in terms of growth ... exports,
employment and income → economic accounts
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2016-07-27
Current Partial Integration in CSNA
 Current treatment of NR in Canadian system of
national accounts reflects a partial integration
 Specifically, NR are incorporated into annual
estimates of national wealth ... At economy-wide
level on Consolidated National Balance Sheet
 National wealth covers produced as well as nonproduced assets ─ includes NR by major type
 Two issues: ↑Frequency of NR; develop sectoral
estimates for National Balance Sheet Accounts
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International standards' guidance SNA08
SNA08
• “Assets appear on the balance sheet of the unit that is the
economic owner of the asset`` (SNA08 13.3) → a key
principle in the economic accounts ... But not always
followed in SNA08
• “... In many cases this unit (the economic owner) will also be the
legal owner but in the case of a financial lease, the leased asset
appears on the balance sheet of the lessee, while the lessor has
a financial asset of similar amount and a corresponding claim on
the lessee” (SNA08 13.3) → But is it required to treat NR
as a leased produced asset ?
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SNA 2008 (cont’d)
 :
“... On the other hand, when a natural resource is the subject of a
resource lease, the asset continues to appear in the balance sheet
of the lessor even though most of the economic risks and rewards of
using the asset in production are assumed by the lessee” (SNA08
13.3)
 No SNA08 guidance as to why in this case ... Why violate
the key economic ownership principle?
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SNA 2008 (cont’d)
 “Contracts, leases and licenses may be operating leases, licenses to
use natural resources, permits to undertake specific activities and
entitlement to future goods and services on an exclusive basis ...
these sorts of contracts are regarded as assets only if the existence
of the legal agreement confers benefits to the holder in excess of the
price paid by the lessor, owner of the natural resource or permit
issuer and the holder can realize these benefits legally and
practically. It is recommended that such assets (the natural resource
lease, permit or licenses) be recorded only when the value of the
asset is significant and realized, in which case a suitable market
price necessarily exists.” (SNA08 13.52)
 NR pass the significance and suitable market tests →
resource leases should be recorded ... As a non-financial
intangible asset, following corporate accounting
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2016-07-27
SNA 2008 (cont’d)
 “... Because there is no wholly satisfactory way in which to show the
value of the asset split between the legal owner and the extractor,
the whole of the resource is shown on the balance sheet of the legal
owner and the payments by the extractor shown as rent” (SNA08
13.50)
 Possible interpretation: second-best solution
 An attempt at establishing a one approach fits all
economies ... Realistic?
 For CSNA → implementation issues
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2016-07-27
SNA08 Issues in relation to sectoring natural
resource wealth
 Inconsistency with economic ownership principle
 Does not reflect economic reality in Canada and
in a number of other economies → no one
approach applies to all economies
 Accounting standards for corporations and
government
 Does not articulate impact on government
accounts ... GFS?
 No clear distinction between value of NR and
associated resource leases (rights to extract)
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SEEA031
 .
The draft SEEA (2012) proposes that “the value of mineral and
energy resources is split between the two owners based on their
share of the future stream of resource rent. The share accruing to
the government should be based on the expected stream of
payments of rent by the extractor to the government ”
 SEEA supports the partitioning of NR with
options
 Can the physical assets be partitioned or is their
an approach that shows claims based on rent
shares?
1SEEA
(2003). “Integrated Environmental and Economic
Accounting, Handbook of National Accounting”, United Nations,
New York
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Government Accounting
 Natural resource stocks are not included in
government financial statements
• Not included in IMF GFS manual currently being
updated
 Government holds assets “in trust for the nation”
 While stocks not necessarily recognized,
revenues including royalties and resource rights
are recognized
• Suggests a corresponding asset
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Corporate Accounting
 Usually carried as intangible asset (also some
out-of-scope depletable assets)
 Carried at written-down acquisition cost rather
than market value
 Can be sold (implies claim on the resources) and
would be carried at transaction price
 Substantial revenues and profits (largest share
of the rent) imply economic ownership
 Reflected in corporate share values
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2016-07-27
Proposed CSNA treatment
 Issue of partitioning the physical assets
• Can physical assets be sectored? NO
 Issue of assets required to match income stream
• Assumptions related to future stream of earnings and
royalties
• Assumptions related to return to capital
 Assumptions related to intangible assets (claims on the
physical stock – right to exploit the reserve) proportional
to their respective shares of rent
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2016-07-27
Sectored NR assets ... sectoral net worth, national wealth
NBSA sectors/assets
Households
Corporations Government
Reclass: Sector CNBS
Proposed
CSNA
treatment,
cont`d
accounts
to
NW
 INSERT
MATRIX
Non-financial
assets
2000
4300 HERE
1400
Total assets
Produced assets
Non-produced assets
5500
7300
2000
3300
1000
1900
1000
400
--Natural resources (NR)
--Intangible assets related
to NR
Financial assets
Liabilities and net
worth
7000
5500
Liabilities
1000
Debt
1000
Equity at market
value
Net worth
8000
Net worth (excluding
intangible assets)
MEMO ITEM
Corporate net worth
as a net asset value
• Residual corporate net worth
13
+1400
-1400
7700
6300
1400
1400
1000
(derived)
3000
7300
400
(calculated)
500
1900
7500
4000
3500
2000
2000
n/a
n/a
n/a
n/a
-200*
-1200*
-100
-500
7700
3300
n/a
n/a
Statistics Canada • Statistique Canada
n/a
n/a
2016-07-27
Sectoring Methodolgy
 Draft SEEA 2012 — base the government’s
share of natural resource wealth on the NPV of
the expected stream of government income paid
by resource extractors to governments (i.e.,
royalties and special taxes). The amount of
royalties depends on a number of factors, such
as resource price, quantity of production and
government's policies
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2016-07-27
Sectoring Methodology (cont’d)
 To arrive at the corresponding corporate sector
asset, the NPV of the remaining resource rent
(total resource rent less government royalties
and special taxes) is allocated to the corporate
sector as its share of resource wealth
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Summary
 Plan to implement sectored natural resources in
2014 mini historical revision
• Based on the model described here
 Would be appreciative of feedback (now or later)
 Questions or Suggestions?
• Joe.Wilkinson@statcan.gc.ca
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Statistics Canada • Statistique Canada
2016-07-27