Kinder Morgan's agreement to pay British Columbia up to $1-billion in exchange for being permitted to expand the capacity of the Trans Mountain pipeline is without a doubt a political victory for Premier Christy Clark.
The money gives the Premier the cover she needed to approve the controversial pipeline, which will carry Alberta bitumen to Vancouver's tidewaters.
But for anyone concerned about free trade and the rise of populist rhetoric against it, this unprecedented payment is extremely worrisome.
This revenue-sharing deal is not linked to anything other than Ms. Clark's desire to demonstrate to voters that she has wrung a financial concession out of Kinder Morgan.
And how did she get that concession? By leveraging her government's ability to prevent the pipeline's expansion.
The money Kinder Morgan is spending is for "political acquiescence," as one critic of the deal put it. This is not how business is supposed to work.
The role of companies in a free society is to create wealth and jobs, and to pay legislated taxes where appropriate. Sometimes, especially when sensitive environmental issues are involved, companies will spend money to appease affected communities. In this case, Kinder Morgan says it will give more than $350-million to 41 indigenous communities.
But companies should not have to pay a fee to government for permission to expand. Worse, the Kinder Morgan payment is essentially a tax – the amount will vary based on how much oil moves through the pipeline, with expected annual revenues of between $25-million and $50-million for two decades. It acts like a tax, but there is no legislation enabling it, which is dead wrong.
It is also wrong that B.C. is effectively taxing Kinder Morgan for the right to transport Alberta oil over its territory. This is a terrible precedent. What is the difference between this and, say, Alberta imposing a tax on goods made in British Columbia that are trucked through its territory on the way to Saskatchewan?
This kind of strong-arming of companies plays well with voters – president-elect Donald Trump regularly threatens corporations with financial penalties for political gain.
But in Canada, B.C.'s pipeline fee amounts to a tax on goods moving to market through its territory. This is undesirable, and probably unconstitutional. It might be good for Ms. Clark, but it is bad for Canada.