The Alberta government is buying a 50 per cent stake in the troubled Sturgeon Refinery and extending the current 30-year processing agreement by another decade.
The province will share ownership of the refinery, located 45 kilometres northeast of Edmonton, with Canadian Natural Resources Limited.
The government said in a news release Monday the partnership will save $2 billion over the life of the project. Debt refinancing will free up to $1 billion in cash flow over five years due to better interest rates.
Energy Minister Sonya Savage said the government made this deal to make the best of a bad agreement that had iron-clad provisions that were impossible to escape.
"Under the previous deal, we had all the risk, we took all the risk...and we had no ability to control or mitigate that risk to control costs or to have any say in how the refinery was operated," Savage said in an interview with CBC News.
"With this deal, we save $2 billion and we have a seat at the table."
Under the original agreement reached in 2012, North West Redwater Partnership, which was owned equally by North West Refining Inc. and a subsidiary of Canadian Natural Resources, owned and operated the refinery.
The deal announced Monday has North West Refining transferring its ownership stake to the government of Alberta, which gives the province an equal vote in the operations. Officials say taxpayers wouldn't incur additional costs.
The North West Redwater Partnership is paying $425 million to North West Refining and $400 million to CNRL. Under the original agreement, Alberta government had to pay processing fees and profits each month.
Paying this money upfront means the government will no longer have to make these monthly payments, and will save money over the term of the agreement.
Savage compared it to the savings of paying off a credit card balance today instead of incurring interest costs by paying instalments over a longer period of time.
"The owners of the refinery were guaranteed a rate of return by the Alberta government under the previous deal for many, many years," Savage said.
"By paying that out now, it saved a lot of money for the Alberta government. If we didn't pay it out now, we'd be paying it out month-by-month, year-by-year over decades and it would be a lot more."
The Alberta Petroleum Marketing Commission (APMC) had responsibility for supplying 75 per cent of the feedstock for the refinery, which would process raw bitumen into diesel and other products.
The government estimates the refinery will lose $2.5 billion over the life of the project. The province will pay $26 billion to refine the bitumen which it intends to sell for a profit.