Prime Minister Justin Trudeau took the stage on Tuesday evening at The Globe and Mail Centre in Toronto hours after his government announced a deal to acquire the Trans Mountain pipeline, and was introduced as “Canada’s newest oil baron.”
Mr. Trudeau took the joke in stride, responding that his grandfather owned gas stations, so perhaps it’s appropriate his government is dropping $4.5-billion to take over the controversial energy project from Kinder Morgan Inc. If the Prime Minister can duplicate his grandfather’s track record, taxpayers will do just fine out of the Trans Mountain deal. But Mr. Trudeau needs to get his timing right.
Charles-Émile Trudeau, a lawyer by training, spent the 1920s acquiring gas stations around Montreal, then sold the chain of 30 outlets to Imperial Oil in 1932 for $1-million − and as they say, that was when a million was worth something. That investment formed the base of the family’s fortune.
The federal Liberals bought Trans Mountain to fulfill their commitment to get Alberta oil to the British Columbia coast after its Houston-based owner threw in the towel on plans to triple the pipeline’s capacity in the face of fierce political and public resistance, especially in B.C.
The federal government is already trying to find a willing buyer to take Trans Mountain off its hands. Investment bank Greenhill & Co. has been hired to pitch the project to everyone from pension-fund bosses to private-equity investors to pipeline companies. But the timing is off.
No private company will be willing to go near Trans Mountain when the fate of the project remains in doubt. As long as environmentalists and other opponents believe they can stop the pipeline, its owner will be a political target. No chief executive wants to associate the corporate brand with scenes of pipeline protesters being led away in handcuffs, or deal with endless court challenges from B.C.’s NDP government.
So for now, the pipeline can’t be flipped. The challenge for Ottawa − and Bay Street − is figuring out how much of the long-promised pipeline expansion must be built before the perceived risks begin to drop away and buyers step up with attractive offers. Opinions on this are all over the map.
The head of one investment bank, speaking anonymously because his firm desperately wants to work for a future buyer, told me the Liberals will not get full value for Trans Mountain until the project is 100-per-cent done, with oil flowing into tankers in Vancouver harbour.
His second-in-command, in the same conversation, insisted there would be a lineup of buyers at 30-per-cent complete. This banker said heavyweight U.S. investors such as Berkshire Hathaway Inc., which already has significant stakes in Canadian utilities, and Blackstone Group LP would be potential bidders.
Bankers are also working on plans to help Trans Mountain win an elusive social license by selling the project to a consortium of public sector pension plans with solid environmental credentials, including the British Columbia Investment Management Corp. It’s worth noting that the country’s biggest fund, the Canada Pension Plan Investment Board, said on Tuesday that it is “not actively assessing an investment in the extension opportunity.”
That language is telling. The message from CPPIB is: We’re not interested now, but call us when the noise dies down.
The bright minds on Bay Street are also working on solutions to the problems that drove away Kinder Morgan. If First Nations groups are raising concerns about the pipeline, bring them in as co-owners, as Suncor Energy Inc. did by partnering with the Fort McKay and Mikisew Cree First Nations on a recent $500-million investment in an Alberta oil storage facility. Canadian banks might be able to provide the financing to make those investments possible.
Infrastructure assets such as pipelines, and the dependable cash they kick off, are currently hot investments. If Mr. Trudeau can do as his grandfather did and build a business that supplies energy to customers who need ever-increasing amounts of fuel, Trans Mountain will have no shortage of buyers. But the government needs to reduce the risks before those investors emerge.