When Prime Minister Justin Trudeau kept telling Canadians, “We are going to get the pipeline built,” they probably didn’t think that by “we” he meant them. They saw it as more of a royal “we” that referred to his government’s efforts to help Kinder Morgan complete the expansion of the Trans Mountain pipeline on budget.
But no. Ottawa announced Tuesday that it will lend Kinder Morgan money to ensure that construction scheduled for this summer begins on time, and will furthermore buy the pipeline from the Texas company for $4.5-billion. The government expects to become the owner of the existing pipeline by August, and to bear the cost of completing the expansion that has been pegged at more than $7-billion.
In the meantime, Ottawa will look for another company to buy the pipeline, but in all likelihood that will take years. It’s safe to say the Government of Canada will still be in the pipeline business after the general election in 2019.
That means the Canadian taxpayer is financially implicated in the political war between Ottawa and the government of British Columbia, which is nothing anyone ever voted for. Plus, there is a whiff of economic nationalism to the decision, and with that a worry that foreign investors are having second thoughts about Canada.
Kinder Morgan effectively wiped its hands of a potentially lucrative pipeline project because the politics of this not-that-united country was putting its shareholders at risk. Other companies will surely take note.
That said, Ottawa made the only decision it could. Kinder Morgan’s May 31 deadline for a firm commitment that it would be able to proceed on schedule was just days away. The government was out of options.
Its hand was also forced by the B.C. government. Premier John Horgan’s passive-aggressive campaign to stall the federally approved pipeline project, in defiance of Ottawa’s constitutional jurisdiction in the matter, had done its intended damage.
But just because Ottawa had little choice, it’s not automatically true that it struck a bad deal. It is purchasing hard assets that have an existing annual revenue stream, and it will own a company that has the necessary approvals to triple its capacity. The price is high but, if handled properly, it is arguable that this deal could be a net benefit to taxpayers.
As well, Ottawa’s rather bold decision has made it clear to B.C., and anyone else watching, that it will not allow its jurisdiction to be usurped. Kinder Morgan played by all the rules to get the expansion approved; it became Ottawa’s job to ensure that its decision was not blocked by one grandstanding premier. It did what it had to do.
It is important to remember that getting Alberta’s crude to more foreign markets is critical to the country’s economic interests, and that the pipeline expansion has the support of the majority of people polled in Canada and B.C.
So the issue is not so much what the government has done, but what will happen next. There are myriad reasons to worry Ottawa will mishandle this.
Among other things, the Trans Mountain expansion has sparked demonstrations at which people have been arrested. That raises the question of whether or not Mr. Trudeau has the stomach for watching Canadians get manacled on his government’s behalf, not to mention for telling indigenous communities that the pipeline is going through their land whether they like it or not, or for being attacked for being on the wrong side in the fight against climate change, one of his pet issues. He could well decide his best move is to unload the pipeline at a steep discount to the first taker.
Then there is the fact that governments are captive to different forces than private companies.
The Trudeau government has staked its political life on getting this expansion built. That means it will see it through even if there are changes in the oil market, such as a drop in demand for Alberta’s heavy bitumen, or a collapse in crude prices, that make the project economically unviable.
Kinder Morgan would never vow to shareholders that it is “going to get the pipeline built.” Its only commitment is to the bottom line.
Mr. Trudeau has other priorities. His focus is partly on what he can extract from Trans Mountain on behalf of taxpayers, but mostly on what he can extract in political benefit. One cancels out the other. We don’t say this maliciously. We just know how politics works.