Liberals to buy Trans Mountain pipeline for $4.5B to ensure expansion is built
Canadian public could also incur millions to construct expansion project with estimated price tag of $7.4B
The Liberal government will buy the Trans Mountain pipeline and related infrastructure for $4.5 billion, and could spend billions more to build the controversial expansion.
Finance Minister Bill Morneau announced details of the agreement reached with Kinder Morgan at a news conference with Natural Resources Minister Jim Carr this morning, framing the short-term purchase agreement as financially sound and necessary to ensure a vital piece of energy infrastructure gets built.
“Make no mistake, this is an investment in Canada’s future,” Morneau said.
Morneau said the project is in the national interest, and proceeding with it will preserve jobs, reassure investors and get resources to world markets. He said he couldn’t state exactly what additional costs will be incurred by the Canadian public to build the expansion, but suggested a toll paid by oil companies could offset some costs and that there would be a financial return on the investment.
Kinder Morgan had estimated the cost of building the expansion would be $7.4 billion, but Morneau insisted that the project will not have a fiscal impact, or “hit.”
He said the government does not intend to be a long-term owner, and at the appropriate time, the government will work with investors to transfer the project and related assets to a new owner or owners. Investors such as Indigenous groups and pension funds have already expressed interest, he said.
Until then, the project will proceed under the ownership of a Crown corporation. The agreement, which must still be approved by Kinder Morgan’s shareholders, is expected to close in August.
A senior government official, speaking on background, said the government hopes to get a new commercial buyer for the pipeline by August, but if that doesn’t happen, it will put up the $4.5 billion to purchase the assets.
The government won’t publicly discuss construction cost for the expansion because it wants private companies to carry out their own assessments, then bid on the project, the official said.
Conservative Leader Andrew Scheer said today’s decision does nothing to advance the project, since the legal questions and obstacles still remain. He said the government has failed to take action to ensure certainty around the expansion by resolving jurisdictional issues.
“This is a very, very sad day for Canada’s energy sector. The message that is being sent to the world is that in order to get a big project build in this country, the federal government has to nationalize a huge aspect of it,” he said.
NDP Leader Jagmeet Singh called it a “bad deal that will solve nothing.” Pushing ahead with the pipeline betrays the government’s promise to ease reliance on fossil fuels, he said.
“Climate change leaders don’t spend $4.5 billion dollars on pipelines,” he said. “We need a government with a vision that takes our future seriously.”
The pipeline expansion project has faced intense opposition from the B.C. government, environmental activists and some Indigenous groups.
Carr said the plan does not sacrifice the environment for economic benefits.
“Canadians want both and we can have both,” he said.
‘Great economic benefits’
Kinder Morgan issued a statement that says the deal represents the best way forward for shareholders and Canadians.
“The outcome we have reached represents the best opportunity to complete Trans Mountain Expansion Project and thereby realize the great national economic benefits promised by that project,” said chairman and CEO Steve Kean.
“Our Canadian employees and contractors have worked very hard to advance the project to this critical stage, and they will now resume work in executing this important Canadian project.”
Green Party Leader Elizabeth May, who pleaded guilty Monday to criminal contempt for protesting the pipeline, tweeted that Kinder Morgan is “laughing all the way to the bank.”
She called it a bad public policy decision that future generations will regret.
“Historically, I’m quite certain, this will go down as an epic financial, economic boondoggle that future students of political science will say, ‘Why on earth did they do that? That made no sense,'” she said.
Alberta Premier Rachel Notley called it “a major step forward for all Canadians.” She believes any efforts to “harass” the project will have less effect with the federal government as the owner, because it will have Crown immunity in legal proceedings.
She said the pipeline remains a commercially viable project that will turn a profit. She conceded that governments could be on the hook if there is a spill, but said spills are becoming less frequent.
“Just like any project, there is risk. In this case, the risk is very low,” she said.
Prime Minister Justin Trudeau took to Twitter to praise the deal.
“Today, we’ve taken action to create and protect jobs in Alberta and B.C., and restart construction on the TMX pipeline expansion, a vital project in the national interest,” his post says.
Under the arrangement, the government will indemnify a potential buyer for additional costs caused by provincial or municipal attempts to delay or obstruct the expansion. It also promises to underwrite costs if the proponent abandons the project because of an adverse judicial decision, or because it can’t be completed by a predetermined date despite “commercially reasonable efforts.”
Under either of those scenarios, the government will have the option to re-purchase the pipeline before the expansion is abandoned.
Notley has been locked in a bitter dispute over the pipeline with B.C. Premier John Horgan.
Today, Horgan said a change of ownership doesn’t alter his concerns about the risk of a spill that could harm the coastal environment and said he’ll proceed with a legal challenge.
“The good news is I think I have a better chance of progress with a Crown corporation and a government that is responsive to people rather than a company that is only responsive to its shareholders,” he told CBC in Vancouver.
In a news conference, Horgan said the dispute should have been resolved through a joint reference to the Supreme Court.
“Now we have both Ottawa and Alberta, rather than going to court to determine jurisdiction, they’re making financial decisions that affect taxpayers, and they’ll have to be accountable for that.”
The federal government had looked at three options for moving the project forward:
- compensating Kinder Morgan — or any other company — for financial losses caused by British Columbia’s attempts to block the project;
- buying and building the expansion itself, and then selling it once the work is complete, or;
- buying the project from Kinder Morgan, then putting it on the market for investors willing to pick up the project and build it themselves.
Morneau’s announcement comes just two days before a deadline that had been set by Kinder Morgan. The company had said it needed clarity on a path forward for the project by May 31 or it would walk away from construction.
The original Trans Mountain pipeline was built in 1953. The expansion would be a twinning of the existing 1,150-kilometre pipeline between Strathcona County (near Edmonton), Alta., and Burnaby, B.C. It would add 980 kilometres of new pipeline and increase capacity from 300,000 barrels a day to 890,000 barrels a day.
According to Kinder Morgan’s project website, the construction and the first 20 years of expanded operations would mean a combined government revenue of $46.7 billion, with $5.7 billion for B.C., $19.4 billion for Alberta and $21.6 billion for the rest of Canada.