When Bill Morneau went out to talk to reporters on Wednesday, he was really haggling over the price of a pipeline.
If it looked like something else, that’s because neither Mr. Morneau nor Kinder Morgan, the company behind the expansion of the Trans Mountain pipeline, wants to show their bottom line.
There has been a public deadline, warnings and hand-wringing over the political risks that stand in the way of the pipeline. But behind the curtain, something else is going on: Kinder Morgan wanted to sell. In Ottawa’s view, it’s asking too much.
The company dropped a bombshell in April, threatening to pull out of the pipeline expansion, insisting that B.C. Premier John Horgan’s threats to derail the project created too much risk for a company to bear, and setting a May 31 deadline for Ottawa to make that risk disappear.
The squeeze was on. Prime Minister Justin Trudeau had promised that the pipeline would be built, but the federal government can’t stop a province from going to court − even if it doesn’t have a case. Mr. Morneau was mandated with negotiating a financial backstop to take over the company’s risk. But Kinder Morgan wanted to talk about selling the pipeline, and, according to government sources, it wanted a hefty price.
On Wednesday, Mr. Morneau stepped into a news conference to push back in two ways.
The first was to make it clear, publicly, that Ottawa is willing to insure Kinder Morgan against any risk from the B.C. government’s challenge. The federal government was answering Kinder Morgan’s concerns – taking away its stated reasons for why it would back out.
The second was to promise the same indemnity for any other company that might take over the project – and, more importantly, to send the signal that if Kinder Morgan doesn’t want to complete the Trans Mountain expansion, another private company will.
That was Mr. Morneau’s way of telling Kinder Morgan to go shop TMX around to potential buyers – and see what price it gets.
It’s now fairly clear that Kinder Morgan isn’t likely to complete the pipeline expansion. Mr. Morneau’s offer to indemnify the company against risks posed by B.C. isn’t a game-changer. B.C.’s threats never posed much of a risk anyway. And before Mr. Morneau publicly announced his proposal, he surely proposed it in private. That clearly didn’t move Kinder Morgan to start construction.
Kinder Morgan isn’t looking to protect itself against Mr. Horgan. It’s looking to sell.
In Mr. Trudeau’s government, the company obviously felt it had a motivated buyer. But the federal government didn’t like the price − so Mr. Morneau effectively told Kinder Morgan to put the project on the auction block.
It was a tactic akin to Kinder Morgan’s own shock warning that it might abandon TMX. Mr. Morneau called CEO Steve Kean of Kinder Morgan Tuesday night to give him a heads up about his Wednesday news conference – the kind of short notice, one government source observed, that Kinder Morgan provided to the Liberal government in April. The two spoke for an hour.
The timing of Mr. Morneau’s sortie was important, too – just hours before a meeting of Kinder Morgan Canada shareholders. Houston-based Kinder Morgan owns 70 per cent of that Canadian subsidiary, but the other 30 per cent is owned by funds and other shareholders. Federal officials figured some might want to keep a stake in TMX. Perhaps pension funds might want to invest, or oil companies that want to see TMX built. Mr. Morneau essentially signalled that TMX is up for sale.
In the end, however, Ottawa is still likely to be one of the buyers. There aren’t many investors willing and able to swallow a whole pipeline project, fast. The federal government might be part of a consortium that buys TMX – so a deal can be closed in Kinder Morgan’s short time frame, with the intent of selling the expanded pipeline, hopefully for a profit, when it is built.
Politically, it would be far easier for the Liberal government to persuade taxpayers that it’s a good deal if commercial investors think they can make a buck on it, too. Mr. Morneau’s news conference wasn’t really about an indemnity – he was negotiating the price for TMX.