Federal government proposes plan for financing
Financing would apply to losses caused by B.C.’s resistance to pipeline project
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.