Why Trudeau decided to buy Kinder Morgan—and hopes to sell it again soon

Why Trudeau decided to buy Trans Mountain—and hopes to sell it again soon

The feds cuts a deal to buy the pipeline and will bank on positive court rulings, but protests are another matter entirely

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Finance Minister Bill Morneau speaks at the National Press Theatre during a press conference in Ottawa on Tuesday, May 29, 2018. (THE CANADIAN PRESS/Sean Kilpatrick)

Bill Morneau is so imperturbable in his public utterances that it’s always hard to guess at his state of mind. But on the finance minister’s announcement today that he has hammered out a $4.5-billion deal to buy Kinder Morgan’s Trans Mountain pipeline, this much is clear: Morneau seriously can’t want his legacy to be that he saddled the federal government with a pipeline from Alberta’s oil patch to British Columbia’s coast that nobody else wants.

Morneau was compelled to cut this deal as the result of years of political and economic developments. Starting way back when Justin Trudeau launched his bid for the Liberal leadership in 2012, he made backing Alberta’s energy sector a defining personal vow. The lingering economic pain in the province from the 2014 oil price plunge made that pledge even more politically sensitive, with deep implications for his credibility. He approved Kinder Morgan’s Trans Mountain expansion in late 2016.

And so, from the moment B.C.’s NDP government seriously threatened Trans Mountain, Trudeau declared unequivocally, “We will be moving forward with the Kinder Morgan pipeline.” (Note his choice of pronoun.) When the Texas-based company served notice anyway on April 8 that political uncertainty made pressing ahead on the multibillion-dollar plan to twin the existing pipeline too risky, the Liberals had to respond decisively.

READ MORE: Trans Mountain: Will someone please build this government a pipeline?

Enter Morneau. Trudeau assigned him to the file, not only because as finance minister he’s in charge of the cash, but also because Morneau is reputed to be a strong negotiator. His first aim was simply to get stalled construction started again this summer. He did that by offering Kinder Morgan an Export Development Canada loan guarantee to backstop the borrowing it will have to do to resume suspended work right away.

But that’s merely a bridging measure. The heart of the deal is the $4.5-billion offer to buy the existing pipeline, plus the Burnaby, B.C., terminal where the heavy oil that flows through it is pumped onto tankers, plus the personnel needed to continue managing the expansion. “That was an important part of our discussions with Kinder Morgan,” Morneau said today on acquiring expertise along with physical assets. “That will allow us to move forward with an existing management team to deliver the results that we know are in the national interest.”

When Morneau’s deal closes in August, Canadian taxpayers will become the proprietors of a going-concern pipeline, along with a massive infrastructure task that likely won’t be completed until 2021—carrying construction costs Morneau declined to estimate today. Feeling uneasy? Morneau offered this consolation: “We’ve had expressions of interest from multiple investors over the course of this last month.” Then when does he hope to unload Trans Mountain again? “We would not expect it to be a long-term hold,” he said cautiously. “We would expect it to be a short- or medium-term hold for the government.”

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A skeptic might reasonably wonder how he can be so confident a buyer will materialize when Kinder Morgan obviously doesn’t want Trans Mountain anymore, and no eager private-sector player has stepped up to preempt Ottawa’s offer. Morneau’s officials emphasized that government ownership likely makes more sense during the next phase of construction because B.C. would almost certainly not be allowed by the courts to impose any new provincial restrictions on a federal Crown project.

In fact, the legal obstacles that now worry Kinder Morgan might begin to look less severe in the near future. Many constitutional experts doubt B.C. Premier John Horgan will get the answer he wants from the B.C. Court of Appeal in his reference case seeking their approval for his government to restrict the flow of diluted oil-sands bitumen through the province. In another court action, on some Indigenous communities’ challenges to the National Energy Board process that approved the Trans Mountain project, the Federal Court of Appeal is expected to rule in June, and the NEB has won similar cases in the past.

If those two court cases break Ottawa’s way, however, that still doesn’t mean the Trans Mountain twinning will be smooth going, or that the successful resale of the pipeline is assured. Construction season is also protest season. Morneau was careful to note that the political risks to the project he’s been grappling with so far have to do only with the B.C. government’s opposition—not environmental groups or First Nations demonstrating to try to halt construction.

Morneau, characteristically, didn’t give away anything on the civil disobedience issue. “There will always be challenges in getting things done in a democracy,” he said blandly, “and we’ve certainly been facing those challenges in many projects over many years, as have other countries.” If those words don’t offer much sense of how worried the federal government might really be, watching Morneau’s face or hearing his voice as he spoke them wasn’t any help.

The full transcript of Finance Minister Bill Morneau’s comments:

As you’ve heard me say before, and as the Prime Minister has also said, the Trans Mountain Expansion Project is of vital interest to Canada and to Canadians. Our government’s position is clear, it must be built and it will be built. Getting the Trans Mountain Expansion Project built will preserve thousands of good, well-paying jobs, the kind of jobs that strengthen and grow the middle class in our country.

We will ensure that we’re able tos safely get Canadian Oil resources to world markets, where we can get a fair price for them. And it will be reassure investors that Canada is a country that respects the rule of law and gets big important things done. It’s important to remember though, that Canada is also a place where we understand that the environment and the economy must go hand in hand.

Trans Mountain Expansion Project is no exception.

A world-leading oceans protection plan, the extensive ongoing consultations with indigenous communities, the strength in Environmental standards, and the rigors of the approval process – all of these factored into what decision our government is announcing today. So too, did our understanding of the division among provinces such as the dispute that’s arisen between Alberta and British Columbia, cannot be allowed to fester in our country. especially not when the resulting impasse Threatens both the livelihood of thousands of workers and Canada’s solid reputation as a good place to invest.

So for the last few weeks, I’ve been in intense negotiations with Kinder Morgan, Trans Mountain’s owner, these discussions became necessary when the political uncertainty caused by the NDP government in British Columbia, made it difficult for the company to proceed with construction.

The uncertainty caused unnecessary delays, put thousands of jobs at risk, including up to 9000 jobs in British Columbia and it’s holding back Canada’s economic growth. This is all happening after the Trans Mountain expansion project was approved by both the federal government and the province of British Columbia following the most rigorous process and environmental assessment in our country’s history.

So our message today is simple: when were faced with an exceptional situation that puts jobs at risk, that puts our international reputation on the line, our government was prepared to take action. To guarantee the summer construction season for the workers who are counting on, and to ensure the project is built to completion the timely fashion, the government has reached an agreement with Kinder Morgan to purchase the existing Transmountain pipeline and the infrastructure related to the Trans Mountain Expansion Project.

The agreement, which is expected to close this August, was approved by cabinet this morning and is now subject to approval by Kinder Morgan shareholders. This $4.5 billion investment represents a fair price for Canadians and for shareholders of the company, and will allow the project to proceed under the ownership of a crown corporation. The core assets required to build the Trans Mountain Expansion Project have significant commercial value and this transaction represents a sound investment opportunity.

That’s why we chose not to provide a subsidy to Kinder Morgan but, rather, to enter into a Commercial agreement that will make the most if the economic potential of this project. It’s an agreement that we believe will deliver a real return on investment for the benefit of British Columbians, albertans and all Canadians. It’s not, however, the intention of the government of Canada to be a long-term owner of the project. Canada work with investors to transfer the project and related assets to a new owner or owners in a way that ensures that project’s construction and operation will proceed in a manner that protects the public interest.

For indigenous groups, we’ll make sure that Existing profit-sharing and other agreements established with Kinder Morgan, remain in effect. Many investors have already expressed interest in the project, including indigenous groups, Canadian pension funds and others.

To facilitate the transfer of ownership, we’ll extend the federal indemnity to protect any new owner from costs associated with politically-motivated delays. The province of Alberta also support the project, providing an emergency fund for any unforeseen costs, if needed. In return, Alberta will receive value commensurate with their contribution.

We believe that the best way to protect thousands of good, well-paying jobs and the safest and most effective way to get our natural resources to world markets. Make no mistake, this is an investment in Canada’s future.

To investors who are considering Canada as a place to build big, important transformation projects like the Trans Mountain expansion, we want you to know that you have a partner in Ottawa. One who not only respects the rule of law but who understand the challenges that you’re up against. And who’ll work with you to find solutions that work for everyone.

That’s exactly what we did in this case. And, as a result, the Trans Mountain expansion project will be built.