Liberals can’t simply force a pipeline to be built

THE FINANCE MINISTER IS HARDLY IN A POSITION TO DICTATE TERMS.

Just to recap: In the quest to ship Alberta crude to overseas markets, the federal Liberals are down to one pipeline, having killed off Northern Gateway and allowed Energy East to die.

That pipeline, the Trans Mountain expansion, is now itself in considerable doubt, in part owing to the Liberals’ previous encouragement (previous, that is, to coming to power) of its most determined opponents: by their delegitimization of the National Energy Board, which approved it; by the prime minister’s apparent endorsement of the extra-legal doctrine of “social licence;” and by his apparent endorsement of another position found nowhere in law: that First Nations have a right, not just to be consulted, but to approve or disapprove of projects on lands to which they claim title.

It gets worse. With just one pipeline left to build, and having done their best to ensure it won’t be built, the Liberals — having since declared (since, that is, coming to power) that in fact it will be built — are now down to one company to build it. One, or maybe none.

The company that was going to build it, Kinder Morgan, last month said it will not proceed without some assurance that it can proceed — that it will not be subject to such delays, owing to the obstructionist tactics of the NDP government of British Columbia, as to make the whole thing uneconomic. It must have such assurance, the company says, by May 31.

It’s not clear the Liberals can offer Kinder Morgan the kind of assurance it needs — not by May 31, at any rate. The B.C. government has since referred a series of questions to the province’s Court of Appeal asking whether it has authority to block the shipment of bitumen through the province; even if it is ultimately rebuffed, that is not going to happen before May 31.

The Liberals, meanwhile, have promised legislation clarifying and affirming federal jurisdiction over interprovincial pipelines, so as to deprive the courts of any wiggle room for the usual Solomonic finding of shared jurisdiction (“cooperative federalism” and all that). The legislation, however, has yet to be produced. With just four sitting days left in the month, it is equally unlikely to be passed in time.

So the best the Liberals can offer Kinder Morgan is a series of promises of what will happen after May 31: we’ll pass the legislation, we’ll win in court, and we’ll compensate you for any delays. The finance minister this week described this as “indemnification” — insurance, basically — against the costs of B.C.’s political gamesmanship. How much this might amount to he did not say, with good reason: he can’t. It’s a matter to be negotiated with Kinder Morgan.

The problem is that there is an imbalance in the two sides’ negotiating positions. Notwithstanding the billion dollars it has sunk into the project to date, Kinder Morgan can walk away from it at any time, and will if it feels the capital required to complete the project could be more profitably deployed elsewhere.

Whereas the Liberals cannot walk away: they’ve committed, publicly and unequivocally, to the proposition that “the pipeline will be built.”

It’s all very well for the finance minister to note the government might not have to pay out on Kinder Morgan’s “insurance” policy — why, they might even charge the company a premium for it — but he’s hardly in a position to dictate terms.

So to give themselves some bargaining leverage, the Liberals have been talking up all the other private companies they have lined up to take over the project, should they fail to come to terms with Kinder Morgan. Companies like … er, um, ah……

The reality is that if Kinder Morgan is unwilling to complete the project, even with a federal backstop, it is unlikely any other private company would prove more willing. Not only would it face all of the same obstacles Kinder Morgan faces — in addition to the B.C. government’s opposition, there is a separate lawsuit by several First Nations, plus the mounting threat of physical force by protesters on site — but it could not be certain the NEB’s approval of Kinder Morgan’s application would apply to it.

So increasingly the focus of speculation is on other, “non-private” sources of capital. And here is where things start to get a little alarming. If overt nationalization is unlikely, that does not mean it could not happen by other means.

The finance minister was quoted telling Reuters this week of the many “very sophisticated Canadian pension funds and institutional investors” with the expertise to take on the project. Again, he offered no names for the record, but it is significant that the first place the reporter went for comment was the Canada Pension Plan Investment Board, an agency of government with fiduciary responsibility for the pensions of millions of retirees.

The CPPIB is free to invest in any project around the world. Is this really the sort of thing it wants to get mixed up in, a hugely contentious project backed by one of its government sponsors and opposed by another?

Another possibility being floated is the nascent federal Infrastructure Bank. You’ll recall the point of the bank was to be at arm’s-length from political interference, and thus able to raise funds from private investors on strictly commercial terms. Yet hardly has it begun operations and the first thing it’s supposed to finance is a pipeline the government has staked its life on?

Maybe it will never come to that. Maybe the Liberals will find a way to keep Kinder Morgan on board. But they are running out of options and they are running out of time.