EDMONTON - More than 30 years after it was created, Alberta's multibillion-dollar Heritage Savings Trust Fund has become a stagnant pool of money that has failed to achieve one of its primary goals -- diversifying the province's boom-bust economy.

Former Tory premier Peter Lougheed, whose government created the fund in 1976, is sorely disappointed and has renewed his push to breathe new life into the fund.

Lougheed, who has a Harvard MBA, was shocked when he heard that the Heritage Fund had lost $3 billion in the markets, reducing its value to $14 billion.

"That number is distressing to me because when I left government in 1985 the fund was of a similar value," he told The Canadian Press in an interview.

Lougheed's government designed the Heritage Fund so that 20 per cent could be used for capital projects to help diversify the province's roller-coaster economy that still relies primarily on the energy sector.

In the early years, the fund was used to kick start the petrochemical industry and to create a medical research foundation.

But these are among the only diversification successes.

"It was a clear, specific and I think highly successful diversification of our economy that occurred," Lougheed says.

The Heritage Fund grew rapidly in the 1970s as Alberta boomed. The province put 30 per cent of oil and natural gas revenues into the pot.

But the fund was capped shortly before Lougheed retired as oil prices plummeted and the province starting sinking into debt.

The next Tory administration, led by Don Getty, started draining the fund's revenues, which were being generated by billions worth of investments. That continued after Ralph Klein became premier in 1992. The fund's value wasn't even keeping up with inflation.

Veteran Alberta economist Greg Flanagan says the Heritage Fund is now worth only a fraction of what it could have been if successive Tory governments had continued making contributions.

"It has shrunk tremendously when you weigh its value in constant (1985) dollars," says Flanagan. "A 2009 value of $14 billion, that's probably $7 billion or less in those dollar terms."

Getty made several high-risk investments with government funds. Many proved to be huge failures. NovAtel Inc., a cellphone firm, collapsed at a cost of at least $566 million and the Magnesium Company of Canada was mothballed at a cost of $115 million.

When Klein became premier in 1992, his administration chose not to build the fund in any significant way, even when the boom times returned to Alberta.

"(Klein) wasn't interested, for a variety of reasons, in sustaining the Heritage Savings Trust Fund," says Lougheed. "He set up other funds. So it never really fully met the objective of diversification."

"The fund was allowed to stay at a pretty static position for a number of years."

Lougheed, who will be 81 this month, concedes that the political bruising that Getty had taken over his government's investment choices likely left Klein's government leery of taking the same kind of risks.

But he bristled when reminded of Klein's often repeated slogan that his government was "no longer in the business of being in business." Lougheed suggests that was a mistake, given that the Heritage Fund had always been intended to have an element of risk capital.

"I think the province should have been building in a significant way more diversification into our economy in a multitude of ways."

Klein responded to an interview request with his usual candour, stating in an email that "as much I would like to reply (to Lougheed's remarks), I will keep my mouth shut. It's not my nature to criticize past premiers or the present one."

Roger Gibbons, with the Canada West Foundation, says he's not surprised by Lougheed's feelings.

"If I was looking at my own portfolio and it hadn't grown at all over 20 years, I'd be rather distressed," says Gibbons. "What the Klein government didn't do is learn from the handful of successes, including the medical research foundation."

Lougheed is hoping Alberta's present Tory government, led by Premier Ed Stelmach, will return to the original policy of diverting 30 per cent of oil and natural gas revenues into the fund and using a portion of the money to fund diversification projects.

"I'd like to see the fund rebuilt. I think the public of Alberta would support that," he says. "It will be difficult because they're going through such a turmoil right now in terms of the world business and financial environment."

Stelmach's government has put about $10 billion into the Sustainability Fund, a separate pool of money which is being used to top up the province's budget now that Alberta is sinking back into debt. New projections forecast a deficit in the $7 billion range for the current fiscal year.

"In terms of a cushion fund, we put together the Sustainability Fund because we know we have the most volatile revenue of any jurisdiction in North America and unfortunately, we have to draw on it," Stelmach says.

The current premier says he's also reluctant to invest Heritage Fund money in the way that Lougheed suggests.

"I'm not looking to invest in any particular business using Alberta Heritage Savings Trust Fund money," Stelmach says. "That's for future generations."

"I'm looking at how the private sector can invest in Alberta to diversify our economy," he says. "I have tremendous faith in the private sector to do that."