Ottawa vows to cover Trans Mountain losses due to B.C. delay

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The Trudeau government is pledging to cover financial losses suffered by Kinder Morgan if the B.C. government obstructs or delays the Trans Mountain project, federal Finance Minister Bill Morneau announced Wednesday.

He said Ottawa would also compensate any other party that took over the Trans Mountain expansion if Kinder Morgan, which has ceased non-essential work on the pipeline project, walks away from it.

A senior federal government source, who spoke on condition of anonymity, said Mr. Morneau’s announcement was designed to test Kinder Morgan’s commitment to the project by removing what should be the biggest obstacle to the company moving forward.

The source said Ottawa is trying to determine if the company is serious about striking a deal that would see it covered for the financial risks from B.C. government opposition – as Kinder Morgan has stated publicly − or whether it simply wants to exit the project.

The federal government believes there is a real possibility that this project will require a new owner or investor in order to be completed, the source said.

“We are willing to indemnify the Trans Mountain Expansion against unnecessary delays that are politically motivated,” Mr. Morneau said during a news conference in Ottawa, specifically naming Premier John Horgan who is proposing measures that threaten the future of the project that would run through British Columbia.

“If Kinder Morgan is not interested in building the project, we think plenty of investors would be interested in taking on this project, especially knowing that the federal government … is willing to provide indemnity to make sure it gets built.”

At Kinder Morgan Canada’s annual meeting on Wednesday morning in Calgary, Steve Kean, chief executive of parent company Kinder Morgan Inc., stayed mostly mum on the future of the Trans Mountain expansion. Later, he issued a news release saying negotiations between government and his company “are not yet in alignment” and that the May 31 deadline for a resolution of the matter still stands.

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Mr. Kean said, however, that he appreciates the Finance Minister’s ”recognition that a private company ‘cannot resolve differences between governments.’ ”

He said Kinder Morgan is still seeking “clarity on the path forward, particularly with respect to the ability to construct through British Columbia, and ensuring adequate protection of our … shareholders.”

Mr. Morneau’s financial guarantee, however, only covers obstruction by the B.C. government and not those caused by other forces such as protesters or legal challenges.

In April, amid mounting opposition from the B.C. government, environmental groups and protesters, Kinder Morgan halted all non-essential spending on its $7.4-billion plan to twin an existing pipeline between Edmonton and Burnaby, B.C. It gave Ottawa until the end of May to meet its conditions to move ahead on the project.

Mr. Morneau has been engaged in intensive talks with Kinder Morgan officials, but the two sides have yet to find common ground on the issue.

The Finance Minister declined to explain how the indemnity would work – or how much it might cost taxpayers. He said only that any intervention would be “commercially appropriate” and would not run afoul of international trade treaties.

Mr. Morneau wouldn’t say whether Ottawa would be prepared to directly invest in the expansion project through an equity stake.

“We haven’t come to any conclusions yet,” Mr. Morneau said.

He nevertheless suggested Ottawa would be prepared to do a lot, calling the Trans Mountain expansion case an “exceptional situation” three times in the news conference.

Mr. Morneau said the federal Liberal government figures the expansion is worth backstopping even if Kinder Morgan walked away from it because the additional capacity would help petroleum producers garner the highest possible prices for crude on international markets instead of being hampered by shipment constraints.

The B.C. Premier, meanwhile, fired back at Mr. Morneau, saying Ottawa is unfairly pinning the blame on his government, which he said is within its rights to defend the environment.

Both Ottawa and the Alberta government have said that they are willing to come to some kind of financial arrangement with Kinder Morgan to make sure the project is back on track by this summer. In April, Alberta Premier Rachel Notley said her government could purchase the Trans Mountain pipeline outright to ensure its planned expansion is completed in order to ship more oil to Asia-Pacific markets.

The Morneau announcement takes aim at the BC NDP government, which has asked the B.C. Court of Appeal to provide an opinion on draft legislation that would require Kinder Morgan – or any other large shipper of heavy oil – to meet requirements set down by the province before they can increase the volume of existing shipments. Even if B.C. loses the reference case, it is expected to appeal to the Supreme Court of Canada, leading to additional delays.

The Trans Mountain expansion faces other risks, the largest of which is a Federal Court of Appeal case, launched by opponents of the project, that seeks to toss out the federal regulator’s certificate of approval for the Trans Mountain expansion.

Ms. Notley said on Wednesday Ottawa’s commitment to fully backstop the project is an important step in getting the pipeline back under construction this summer.

With reports from The Canadian Press