Ottawa is betting big on a politically divisive pipeline project, spending $4.5-billion to buy the Trans Mountain expansion from Kinder Morgan. Finance Minister Bill Morneau, who announced the move Tuesday, calls the deal “the best way to protect thousands of good, well-paying jobs.” But big questions still remain about how the Trudeau government will handle B.C. and First Nations’ opposition to the pipeline, and when and how the pipeline will be built.
What Ottawa has said it’ll do
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Federal Finance Minister Bill Morneau takes part in a news conference about the state of the Kinder Morgan pipeline expansion on May 29, 2018.CHRIS WATTIE/Reuters
What Ottawa’s spending: The purchase price negotiated between Texas-based Kinder Morgan and Canada’s government is $4.5-billion, but that doesn’t include the construction and labour costs, so taxpayers will likely pay much more. By one bank’s estimate, Kinder Morgan walks away from the transaction with $1.2-billion more than the existing system’s value plus the money it’s spent so far on the expansion.
What it’s buying: The deal gives Ottawa control over the existing pipeline, the expansion project and the Burnaby marine terminal under a Crown corporation. The government plans to seek a buyer to eventually put Trans Mountain back into private hands, but Mr. Morneau said it also reserves the right to buy back the project it is working to build.
Who bears the financial risk: Mr. Morneau said the government will shelter the project against potential losses due to the B.C. government’s political opposition, until a new owner is found. Alberta’s government is also providing an “emergency fund” of up to $2-billion for the pipeline’s construction.
Who profits: Mr. Morneau says Ottawa is “not seeking to make a profit” from the eventual sale of Trans Mountain, but simply wants to ensure that it gets built. But Alberta’s government will get equity or profit-sharing in return for its emergency fund. B.C.’s government, which signed a profit-sharing deal with Kinder Morgan in 2017, expects its federal counterpart to honour that agreement and pay the province up to $1-billion.
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MURAT YÜKSELIR AND JOHN SOPINSKI / THE GLOBE
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MURAT YÜKSELIR AND JOHN SOPINSKI / THE GLOBE AND MAIL
SOURCE: TILEZEN; OPENSTREETMAP CONTRIBUTORS; HIU;
NATURAL RESOURCES CANADA; OPEN GOVERNMENT; GRAPHIC
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MURAT YÜKSELIR AND JOHN SOPINSKI / THE GLOBE AND MAIL, SOURCE: TILEZEN; OPENSTREETMAP
CONTRIBUTORS; HIU; NATURAL RESOURCES CANADA; OPEN GOVERNMENT; GRAPHIC NEWS; KINDER MORGAN
Trans Mountain: What it is and why Ottawa’s buying it
Trans Mountain is a decades-old pipeline system that can currently carry 300,000 barrels a day of oil from Edmonton to Burnaby, B.C. Its owner, Kinder Morgan, has been trying for six years to thread new pipes alongside the existing ones, at a cost of $7.4-billion. The expansion would nearly triple Trans Mountain’s capacity, increase tanker traffic off the B.C. coast sevenfold – and many fear that puts B.C. at risk of catastrophic oil spills.
From the beginning, many First Nations along the route have been vehemently opposed to the pipeline. The province came around to that position, too, when NDP Premier John Horgan came to power in 2017, supported by the Green Party in opposition to the project, which his Liberal predecessor Christy Clark signed off on.
Political opposition to Trans Mountain gave Kinder Morgan second thoughts about the project, and in April, it gave Ottawa and B.C. an ultimatum: Reach a deal by May 31 or we’ll walk away. Two days before that deadline, Prime Minister Justin Trudeau’s government announced in Ottawa that it would buy Trans Mountain from Kinder Morgan and build it themselves.
Interactive: A visual guide to Trans Mountain’s impact on tanker traffic
In depth: A behind-the-scenes look at how the Trans Mountain deal was done
What is a Crown corporation?
A Crown corporation is a state-owned enterprise, something in between a regular corporation (which is accountable to private owners or shareholders) and a government department (which is closely overseen by politicians instead of being allowed to run as a business). The federal and provincial governments use Crown corporations to do things they believe would benefit the public, but likely wouldn’t get done, or done as well, by a for-profit company. Minting coins is a good example: Parliament wouldn’t let a private company have exclusive control of making Canada’s legal currency, so that work is done by a Crown corporation, the Royal Canadian Mint.
Some Crown corporations are designed to run off government funding and be above the profit motive, but others – sometimes called enterprise Crown corporations – have to make their money only from the goods and services they sell. Crown corporations can also own other companies as private subsidiaries, or make loans and contracts with private businesses.
Crown corporations and Canadian energy: A history
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A Petro-Canada station in Toronto in 2008.Frank Gunn/The Canadian Press
Several provinces have Crown corporations for their energy sectors: There’s the B.C. Oil and Gas Commission, which is a regulatory agency, and the Alberta Petroleum Marketing Commission, which handles the province’s oil-related royalties and works to expand Alberta’s access to global energy markets. But the federal government’s been out of the oil business for a while – and it was originally a Trudeau who got them into it.
In the early 1970s, the world was in an energy crisis: Political developments in the Middle East sent prices skyrocketing, creating an opportunity for oil producers in Alberta – and the government of prime minister Pierre Trudeau wanted to make sure Canada would get a share of the benefits. Parliament passed legislation in 1975 to create a Crown corporation, called Petro-Canada, that took over federal stakes in two private oil companies. Over the years, it acquired other companies and opened up new oil fields in Western and Atlantic Canada. But under the Progressive Conservative government of Brian Mulroney, Ottawa began piecemeal privatization of Petro-Canada. The company still exists today, but as a private subsidiary of Suncor Energy.
What’s Ottawa’s endgame on Trans Mountain?
Who will buy this? The federal government says it doesn’t intend to be Trans Mountain’s landlord forever: It is reaching out to potential investors to take over the project. Mr. Morneau suggested the Alberta government, Indigenous groups or pension funds would be interested. But Ottawa may have trouble finding a buyer for the project, however, despite its pledges to shoulder some of the risks and help fund construction. “There are limited options,” Rob Thummel of Tortoise Capital Advisors, which owns Kinder Morgan shares, told The Globe. “It’s a big cheque to write, so it’s probably got to be somebody with a sizable balance sheet.”
What about the opposition? There are few if any signs that the Trudeau government’s move has eased B.C. and First Nations’ objections to Trans Mountain; rather, Mr. Trudeau has now made himself the lightning rod for that opposition. B.C. Premier John Horgan says he will continue to find ways to limit the flow of oil through the pipeline, and multiple Indigenous nations issued statements condemning Ottawa’s purchase. “We’re going to gather more allies within the nations of B.C. and across Canada,” said Will George, a spokesman for the Tsleil-Waututh First Nation, adding that the federal takeover will strengthen a broader coalition of pipeline critics in coming months. “Now it’s everybody’s problem.”
Trans Mountain, Trudeau and the B.C.-Alberta feud: A guide to the political saga so far
Compiled by Globe staff
With reports from Steven Chase, Kelly Cryderman, Jeff Lewis, Jeffrey Jones, Justine Hunter and The Canadian Press
Commentary and analysis
Editorial: Ottawa throws your money at its pipeline problem
Gary Mason: Justin Trudeau’s Faustian bargain
Konrad Yakabuski: Trudeau is now all-in on oil sands expansion
Campbell Clark: Morneau buys a pipeline, and puts Trudeau’s government on the line
Jeff Rubin: Morneau had better options for Canada’s energy sector