Fed­eral gov­ern­ment pro­poses plan for fi­nanc­ing

Fi­nanc­ing would ap­ply to losses caused by B.C.’s re­sis­tance to pipe­line project

Edmonton Journal - - FRONT PAGE -

The Lib­eral gov­ern­ment on Wed­nes­day un­veiled a fi­nan­cial back­stop for the Trans Moun­tain pipe­line, of­fer­ing to re­im­burse de­vel­oper Kinder Mor­gan Canada Ltd. for fi­nan­cial losses due to B.C. Premier John Hor­gan’s “at­tempts to de­lay or ob­struct the project.”

Fi­nance Min­is­ter Bill Morneau did not place a cap on how much would be pro­vided to Kinder Mor­gan Canada if it fails to build its $7.4-bil­lion pipe­line ex­pan­sion, nor of­fered de­tails around how it would dis­tin­guish be­tween “po­lit­i­cally mo­ti­vated” losses and those tied to mar­ket forces.

Morneau also did not spec­ify what kind of fi­nan­cial mech­a­nism would be put in place to help Kinder Mor­gan re­coup any costs, say­ing dis­cus­sions were on­go­ing. He said such an in­dem­ni­fi­ca­tion against fi­nan­cial loss “would still be in place for an­other party,” and sug­gested that other pri­vate sec­tor play­ers might be in­ter­ested in tak­ing over Trans Moun­tain if Kinder Mor­gan de­cides to scrap the al­ready-de­layed pipe­line.

The move — putting pub­lic dol­lars be­hind a pri­vately driven project — is the stark­est ev­i­dence yet that the fed­eral gov­ern­ment is keen to en­sure the project reaches com­ple­tion, just as the pipe­line en­ters its most cap­i­tal-in­ten­sive phase. The Trans Moun­tain ex­pan­sion would bring heavy oil and re­fined prod­ucts from north­ern Alberta to a Van­cou­ver port.

Steve Kean, chair­man and CEO of Kinder Mor­gan’s Cana­dian unit, how­ever, point­edly noted the com­pany and the fed­eral gov­ern­ment “are not yet in align­ment.”

He re­it­er­ated the com­pany dead­line for re­solv­ing the is­sue and hinted that it could walk away from the project. “The time pe­riod for reach­ing a res­o­lu­tion is short and if we don’t reach a res­o­lu­tion by May 31, as we’ve said, it’s hard to con­ceive of a sce­nario in which we can pro­ceed.”

The fed­eral gov­ern­ment’s de­ci­sion to in­ter­vene comes after Kinder Mor­gan Canada, the Cana­dian divi­sion of its Hous­ton­based par­ent, an­nounced April 8 that it would halt all non-es­sen­tial spend­ing on the pipe­line bar­ring as­sur­ances that it would not face fur­ther po­lit­i­cal re­sis­tance to the project. The com­pany set a May 31 dead­line to de­cide whether it would move ahead, and called on the B.C. gov­ern­ment to stand down from its op­po­si­tion to the pipe­line.

The move prompted Prime Min­is­ter Justin Trudeau to con­sider “leg­isla­tive and fi­nan­cial” ac­tions to push Trans Moun­tain ahead, fol­low­ing an emer­gency meet­ing be­tween the B.C. and Alberta pre­miers, who have sparred for months over de­lays to Trans Moun­tain’s con­struc­tion.

Hor­gan de­fended his gov­ern­ment’s po­si­tion on the Trans Moun­tain pipe­line Wed­nes­day. He said he is pro­tect­ing the in­ter­ests of Bri­tish Columbia by join­ing two le­gal cases that are al­ready un­der­way over the project and ask­ing the B.C. Court of Ap­peal whether the prov­ince has the right to pro­tect its en­vi­ron­ment through a per­mit­ting sys­tem for haz­ardous sub­stances that are trans­ported in­side its bor­ders.

“The fed­eral fi­nance min­is­ter is try­ing to use our gov­ern­ment as an ex­cuse, as the fed­eral gov­ern­ment puts tax­payer money on the line to back­stop risks to pri­vate in­vestors, while com­pletely ig­nor­ing the risks to B.C.,” Hor­gan said in a news re­lease. “The fact is, we’ve been is­su­ing per­mits in a fair and timely man­ner, and have pro­posed new reg­u­la­tions that are now re­ferred to court to con­firm our ju­ris­dic­tion.”

Richard Roberts, an an­a­lyst at Sco­tia­bank based in New Or­leans, La., said in a phone in­ter­view the back­stop would “pro­vide some level of as­sur­ance” for Kinder Mor­gan, but said var­i­ous other risks could still hob­ble the pipe­line. “I still think they would need some more clar­ity from B.C. that they’re go­ing to be al­lowed to do it,” he said.

The an­nounce­ment comes as Trans Moun­tain en­ters the most cap­i­tal-in­ten­sive phase of con­struc­tion, mak­ing future de­lays in­creas­ingly costly, ac­cord­ing to an­a­lysts. It has al­ready pushed back its com­ple­tion date for the project by a year to De­cem­ber 2020.

In April, Kinder Mor­gan said it has al­ready spent $1 bil­lion on the project and plans to spend an­other $1.8 bil­lion this year.

Ob­servers have spec­u­lated over the fate of the project if Kinder Mor­gan’s de­mands aren’t met, in­clud­ing whether the fed­eral gov­ern­ment and Alberta would take a stake in the project. Not­ley told re­porters in April the prov­ince was con­sid­er­ing a range of fi­nan­cial op­tions to as­sist the project, “up to and in­clud­ing pur­chas­ing the pipe­line out­right if it were to come to that.” The fed­eral gov­ern­ment made no such claims.

Such a move would re­quire an op­er­a­tor such as Calgary-based En­bridge Inc. or Tran­sCanada Corp. to take the reins.

David Gal­i­son, a Toronto-based an­a­lyst at Canac­cord Ge­nu­ity Corp. says Cana­dian mid­stream play­ers likely would be keenly in­ter­ested in a pipe­line project that is al­ready fully sub­scribed and has passed reg­u­la­tory re­view.

In a state­ment, En­bridge said it’s “not en­gaged in con­ver­sa­tions about buy­ing the Trans Moun­tain Pipe­line or tak­ing over the project as op­er­a­tor.”

Tran­scanada did not re­spond to a re­quest for com­ment.


Fi­nance Min­is­ter Bill Morneau has sug­gested that other pri­vate-sec­tor play­ers might be in­ter­ested in tak­ing over Trans Moun­tain if Kinder Mor­gan de­cides to scrap the de­layed pipe­line.


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