Morneau sends a mes­sage to Kinder Mor­gan


Edmonton Journal - - FRONT PAGE - JOHN IVISON

When it comes to spend­ing pub­lic money, gov­ern­ments are gen­er­ally more emp­tor than caveat. So who can blame Kinder Mor­gan for try­ing to up­sell Ot­tawa on the Trans Moun­tain pipe­line? Sim­ply put, Justin Trudeau needs it more than does Richard Kinder, who didn’t be­come the rich­est man in Hous­ton by miss­ing an op­por­tu­nity to sell into a buyer’s mar­ket.

In a three-hour meet­ing in Texas last week, Steve Kean, Kinder Mor­gan’s CEO, is said to have played hard­ball with Cana­dian fi­nance min­is­ter Bill Morneau.

The con­clu­sion Morneau and his ad­vis­ers reached is that Kinder Mor­gan is try­ing to back the fed­eral gov­ern­ment into a cor­ner so they can sell Trans Moun­tain to Ot­tawa for a price well above its mar­ket value.

This ex­plains Morneau’s an­nounce­ment Wed­nes­day morn­ing that the fed­eral gov­ern­ment will back­stop the project with a full in­dem­nity from losses that are “po­lit­i­cally mo­ti­vated” — which means that if the pipe­line’s op­er­a­tor loses money be­cause B.C. Premier John Hor­gan’s ac­tions cre­ate op­po­si­tion to its con­struc­tion, Ot­tawa will give them that money back. (It’s not clear what might hap­pen with losses stem­ming from Indige­nous protests. Are they “po­lit­i­cally mo­ti­vated”?)

Cru­cially, Morneau said that if Kinder Mor­gan still isn’t sat­is­fied, the feds will make that in­dem­nity trans­fer­able to oth­ers who might be will­ing to take on the project.

“We think plenty of in­vestors would be in­ter­ested in tak­ing on this project, es­pe­cially know­ing that the fed­eral gov­ern­ment be­lieves it is in the best in­ter­ests of Cana­di­ans and is will­ing to pro­vide in­dem­nity to make sure it gets built,” he said.

The mes­sage was in­tended less for stake­hold­ers like the B.C. gov­ern­ment than for the ven­dor and po­ten­tial buy­ers. It was Morneau call­ing Kinder Mor­gan’s bluff, let­ting other play­ers know that the as­set is for sale in an at­tempt to es­tab­lish a floor price for the project — pre­sum­ably one lower than the price Kinder Mor­gan is ask­ing for from the gov­ern­ment. Ot­tawa is thought to have al­ready had dis­cus­sions with pipe­line com­pany En­bridge about step­ping in to build and op­er­ate the pipe­line.

For En­bridge’s part, a spokesper­son said the com­pany is not in con­ver­sa­tions about buy­ing Trans Moun­tain, or tak­ing it over as an op­er­a­tor.

Asked how he could be so cer­tain there will be “plenty” of other in­vestors, Morneau said his con­fi­dence comes from the project “pro­vid­ing eco­nomic ad­van­tage.”

Peo­ple fa­mil­iar with the op­er­at­ing pro­jec­tions say the project is sound, if built. How­ever, Kinder Mor­gan sus­pended non-es­sen­tial spend­ing on the pipe­line last month and said it would aban­don the project if B.C. didn’t call off plans to im­pose new en­vi­ron­men­tal reg­u­la­tions, set­ting a May 31 dead­line for reach­ing an agree­ment that it felt would al­low the project to move for­ward.

The B.C. gov­ern­ment, mean­while, has asked the prov­ince’s Court of Ap­peal whether it has the le­gal au­thor­ity to reg­u­late the move­ment of di­luted bi­tu­men through the prov­ince.

Ot­tawa’s fear is that the com­pany could wait un­til the 11th hour be­fore an­nounc­ing plans to moth­ball the project.

In that event, the fed­eral gov­ern­ment would be left with just a cou­ple of days to de­cide whether to buy the pipe­line it­self at what­ever Kinder Mor­gan’s ask­ing price might be. (The feds say Kinder Mor­gan’s valu­a­tion of the com­pleted project at around $7.4 bil­lion is no­tional.)

“Un­der no cir­cum­stances do we want to be the longterm owner,” said one source, al­though he con­ceded the fed­eral gov­ern­ment may have to stump up some money to get con­struc­tion re-started.

Morneau said Wed­nes­day “no con­clu­sion” has been reached about the gov­ern­ment tak­ing an eq­uity stake. “Any sup­port that Canada pro­vides to en­sure this project pro­ceeds must be sound, and fair, and ben­e­fi­cial to Cana­di­ans.”

Any ex­po­sure for tax­pay­ers is a huge gam­ble for the Lib­eral gov­ern­ment, which to this point has been suc­cess­ful in sell­ing vot­ers a mes­sage of bal­anc­ing the en­vi­ron­ment and the econ­omy — putting a price on car­bon, while build­ing pipe­lines. Los­ing tax­pay­ers’ money on a pri­vate-sec­tor pipe­line would tip the bal­ance of those com­pet­ing in­ter­ests.

The mer­est men­tion of the word “na­tion­al­iza­tion” in con­ver­sa­tion with se­nior Lib­er­als was enough to have them reach­ing for their wooden stakes and gar­lic.

A Nanos Re­search poll ear­lier this month said more than two in three Cana­di­ans sup­port Trans Moun­tain and are con­cerned about the neg­a­tive im­pact on how Canada func­tions as a fed­er­a­tion.

But just as many are against the idea of spend­ing tax­payer dol­lars to build it.

Yet, while there are un­der­stand­able con­cerns over Ot­tawa dab­bling in mar­kets about which it knows little, the fed­eral gov­ern­ment has a strong case to make when it claims pub­lic funds are not nec­es­sar­ily at risk.

If the pipe­line is built as planned — and the Lib­er­als main­tain it will be — then no in­dem­nity pay­ments will be made.

What’s more, the his­tory of gov­ern­ment in­vest­ment in en­ergy in­fra­struc­ture projects in this coun­try is long, and less check­ered than might be imag­ined.

One of the most fa­mous con­fronta­tions in Cana­dian par­lia­men­tary his­tory — the 1956 pipe­line de­bate — con­cerned the Lib­eral gov­ern­ment’s pro­posal to build the longest pipe­line in the world to move Alberta nat­u­ral gas to east­ern Canada, and pro­vide a loan to fi­nance part of its con­struc­tion.

Op­posed by the Con­ser­va­tives on the grounds it would sup­ply the United States with cheap Cana­dian gas, the Lib­er­als nonethe­less passed the bill — a move that likely cost them their ma­jor­ity at the next elec­tion. But the pipe­line was built and re­mains un­der Cana­dian con­trol to this day.

An­other cru­cial in­ter­ven­tion saw Brian Mul­roney’s Con­ser­va­tive gov­ern­ment take a stake in the Hiber­nia oil plat­form in 1993. The project was close to col­lapse, threat­en­ing New­found­land’s nascent off­shore in­dus­try. Ot­tawa was al­ready on the hook for $2.7 bil­lion in grants and loan guar­an­tees when the prov­ince’s se­nior min­is­ter in Ot­tawa, John Cros­bie, per­suaded Mul­roney to take an 8.5-per-cent eq­uity stake. Ot­tawa has since been paid back in full, and has re­ceived bil­lions in div­i­dends since the oil started to flow in 1997.

There are no signs this gov­ern­ment is pre­pared to al­low Trans Moun­tain to die on its watch. In Calgary on Tues­day Justin Trudeau re­peated what has be­come his mantra — the Trans Moun­tain pipe­line is in the na­tional in­ter­est and it will get built.

If that re­quires the fed­eral gov­ern­ment to take risks with pub­lic money and its own po­lit­i­cal for­tunes, it ap­pears pre­pared to do so.

The con­se­quences of not do­ing so are be­com­ing ap­par­ent. Rich Kruger, chief ex­ec­u­tive of Im­pe­rial Oil, told his share­hold­ers late last month that cap­i­tal in­vest­ment is at his­toric lows be­cause of ex­pand­ing reg­u­la­tory time­lines, es­ca­lat­ing fis­cal costs and mar­ket-ac­cess chal­lenges.

The com­pany is mulling the future of its 150,000-bar­rel-a-day Aspen project but if they can’t trans­port the oil to their cus­tomers it may not go ahead, even if it re­ceives reg­u­la­tory ap­proval.

In Hous­ton, Kinder Mor­gan is acutely aware of how im­por­tant Trans Moun­tain is to Canada. No won­der it is try­ing to squeeze the fed­eral gov­ern­ment un­til the pips squeak.

Morneau’s gam­ble is that if Kinder Mor­gan finds it can’t ex­tract a pre­mium price from Ot­tawa, the project is so sound fi­nan­cially that the com­pany will pro­ceed as planned. The en­tire press con­fer­ence was de­signed to send the mes­sage to Texas that if they won’t, some­one else will.



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