B.C.’S NDP-GREEN ALLIANCE TROUBLE FOR ENERGY SECTOR
Trudeau must now mimic his dad and come up with his own ‘just watch me’ moment
So much for those prognostications of a Liberal minority government in British Columbia supported by the Green Party.
Monday’s announcement that the Greens will instead support the NDP brings a harsh new reality. And it’s especially surprising given the talk about Green Party Leader Andrew Weaver and the NDP’s John Horgan not being the best of friends.
An NDP-Greens minority government is bad news not only for the energy sector, but Canada’s economic prosperity. The investment climate in B.C. is about to be shredded.
And while Alberta might look like the better dance partner for investment right now, this is not the B.C. government Premier Rachel Notley expected.
Despite the differences between Notley and B.C. Liberal Leader Christy Clark, there is no denying a Liberal majority offered reason for optimism on pipelines and liquefied natural gas projects.
It’s a scenario Kinder Morgan Canada would have wanted to avoid.
The company last week announced the pricing of its $1.75-billion initial public offering of 102.9 million shares and days later said it had reached a final investment decision on its $7.4-billion Trans Mountain Expansion project.
Word has it the investment community’s response was positive on the merits of the company and the Trans Mountain project, though there were concerns around the outcome of the B.C. election, which, at the time, had yet to see absentee ballots counted in the riding of Courtenay-Comox.
The current situation raises some questions, not the least of which is why Kinder Morgan didn’t postpone the IPO pending more clarity on the vote outcome.
But pulling the IPO would not have been the right decision.
It’s one thing to do that in the context of a financial market meltdown — as happened in 2008 and for months thereafter — it’s another to contemplate pulling out of the market because of an election outcome.
If businesses started doing that, it would paralyze the economy.
Governments come and go and companies need to figure out how to work with new regimes. It happened in 2015, in Alberta and at the federal level, and now B.C. is added to that list.
Every prospectus has a section detailing risk factors associated with a particular offering. Kinder Morgan’s outlines 19 such risks, which, in addition to the more conventional commodity price risk, includes such factors as not resolving indigenous rights and title coupled with the Crown’s duty to consult having a material adverse effect on the project, public opposition and concerns of special interest groups and non-governmental organizations contributing to higher costs, delays or even cancellation.
It makes no mention of uncertainty flowing from an election outcome leading to a minority government.
In the end, the shares were placed and a small over allotment option was exercised. How they perform when they open for trading Tuesday will depend who’s buying; investors with a long-term vision versus those interested in a quick flip.
There is also the question of how much of the ‘book’ was placed in the hands of retail rather than institutional clients. The former are more inclined to hold.
The trading performance will also be tied to how the shares were finally priced and if the bankers allowed for some immediate upside. Given the opening $17 price — below the initially announced range of $19 to $22 a share, that initial pop might not happen following Monday’s news from B.C.
The NDP-Green agreement means more uncertainty for investors and is likely to translate into further postponement of final investment decisions related to proposed LNG projects.
This too, is bad news. For companies to position themselves for the next LNG wave, final investment decisions need to be made in 2018.
The new B.C. political climate presents a huge headache for Prime Minister Justin Trudeau and Natural Resources Minister, Jim Carr.
The Trans Mountain Expansion project remains under federal jurisdiction, which keeps the ball firmly in Trudeau’s court when it comes to dealing with protests and other measures that could compromise its progress.
The Kinder Morgan project and the approved replacement of Enbridge’s Line 3 are important for Canada’s economic future. Both will bring dollars to fund budget commitments at both the provincial and federal levels; for health care, education and roads. It’s also where middle-class jobs come from and that’s an important cornerstone of the Trudeau government.
Trudeau and his cabinet recognize that, as does Alberta’s premier, who reminded the Trans Mountain project’s opponents that they have no right to hold the province’s economy hostage.
The question now is whether Trudeau can channel his late father and muster his own “’just watch me’ moment, which is likely what will be needed for the TME to be built.
Another factor is the linkage between responsible resource development being tied to future success and opportunity of First Nations and indigenous peoples in this country.
As demographics change within those communities, and the younger generation sees opportunities presented through the economic development of projects such as the Trans Mountain expansion and others, Trudeau needs to highlight the importance of that link.
What was announced last year — both in September with the approval for Pacific Northwest LNG and in December, with respect to Trans Mountain and Line 3 — was a package of conditions meant to reassure all stakeholders that the right oversight was in place for these projects to proceed.
And that’s what needs to happen. This country has to get something done. It has to show investors that companies can be trusted with their capital, to put it to work and not be frustrated by opposition, that the rule of law in Canada can be relied upon.
The outcome of one election — and a tenuous one at that — in one province cannot be allowed to dictate this country’s economic future.