PIPELINE PUZZLEMENT

On the face of it, the federal government’s purchase of Kinder Morgan Canada’s pipeline assets is a good deal, especially for Kinder Morgan shareholders, including those in a much-derided Texas boardroom.

Ottawa will pay $4.5 billion for assets the company valued in its 2017 financial statement at $3.7 billion, representing a 21 per cent return on investment for Kinder Morgan and other shareholders. Presumably, the government will also relieve Kinder Morgan of its operations and maintenance expenses, which amounted to $216.5 million last year.

Determining whether Canadians got a good deal is a more complicated calculation. The government says it paid the equivalent of $13 a share, a discount to the IPO price of $17 and recent price around $16. As well, the existing operations of the Trans Mountain Pipeline are profitable, having earned $160.7 million in net income in 2017.

The government’s move, however, has not ended uncertainty, but rather merely shifted it from the private to the public sector. Premier John Horgan has vowed to continue his obstructionist tactics, including the reference case in the Court of Appeal to determine whether B.C. has the right to regulate bitumen that flows through the province. Those First Nations who are opposed to the pipeline (many support it) have stepped up their rhetoric with Grand Chief Stewart Phillip, president of the Union of B.C. Indian Chiefs, warning of a violent Oka-like standoff. And the throng of protesters, emboldened by two members of Parliament, Elizabeth May and Kennedy Stewart, who defied a court injunction and were charged with criminal contempt, can be expected to become increasingly assertive.

One somewhat overlooked advantage of the government taking ownership of the Trans Mountain project is that a Crown corporation with agency status (which presumably this one will have) enjoys all the privileges and immunities of the Crown itself. It need not pay provincial or municipal taxes or abide by local bylaws (most Crown corps do so voluntarily). Unfortunately, given that the federal government seemed reticent to exert its authority in the pipeline dispute, it isn’t clear that it will ascribe these powers to its Crown corporation.

Finance Minister Bill Morneau says the federal government’s nationalization of the Trans Mountain Pipeline project sends the message that Canada is a safe place to invest. More likely, the message being heard is exactly the opposite.