An agreement worth as much as $1-billion between British Columbia and Kinder Morgan Inc. removes a key hurdle for the company's plans to triple capacity on its Trans Mountain pipeline, and brings Alberta oil sands producers a step closer to accessing new global markets.
But the ad hoc deal announced by B.C. Premier Christy Clark this week also opens the door to payments being made to other provinces to win their support for controversial infrastructure projects, including TransCanada Corp.'s proposed Energy East and Keystone XL pipelines.
"It does set a precedent," said Werner Antweiler, an economics professor with the Sauder School of Business at the University of British Columbia. "We have not seen a situation in the past where a company actually pays a government for crossing through their territory to deliver goods to market."
Ms. Clark began her bold political gamble in 2012, when her government laid out five conditions regarding environmental, indigenous and economic concerns that needed to be addressed before B.C. gave its blessing to new heavy oil-pipeline projects. On Wednesday, she announced that all five conditions had been met for the Trans Mountain expansion, with the crowning achievement for her government being a deal with Kinder Morgan that will see her province paid $25-million to $50-million a year – depending on how full the pipeline is – for the next 20 years.
Her government says the money will be dedicated to a new B.C. Clean Communities Program that will fund small, local projects such as cleaning up beaches, creating recycling programs or establishing new parks. Kinder Morgan has also committed to a "British Columbians first" policy for hiring and contracting for pipeline-expansion work.
But the deal comes despite the fact the province has no formal claim to a direct payment from the pipeline firm. Municipalities along the pipeline route were already expecting higher property taxes, and the province as a whole was set to see more construction and energy-sector activity. If the project goes ahead, Kinder Morgan said agreements will give 41 B.C. indigenous communities more than $350-million.
Prof. Antweiler said he sees a number of problematic questions arise from the deal. Why exactly is B.C. getting these payments? Will the rate rise in future if another project is more controversial?
"Is it political acquiescence we're paying for?"
Ms. Clark is not the only politician with dollar-specific terms for new pipelines crossing her lands. U.S. president-elect Donald Trump has said he supports TransCanada's $8-billion (U.S.) push to ship more oil to key U.S. markets through the yet-to-be built Keystone XL pipeline. However, he has said he will back the project only if the Calgary-based company is willing to share its profit.
And in 2014, Quebec laid out seven conditions that TransCanada must meet before the government supports the $15.7-billion Energy East project. Besides environmental, First Nation and social considerations, Quebec said the project must also give the province a clear economic boost.
"In an ideal world, I would not like to have payments," said Pierre-Olivier Pineau, chair of energy-sector management at the business school HEC Montréal. "But given the kind of controversy that these kind of projects are creating, it's a good thing. …It makes the project more acceptable for some people."
Prof. Pineau said there's no question that the provinces Energy East would cross – Quebec, as well as Saskatchewan, Manitoba, Ontario and New Brunswick – will be paying close attention to the B.C. deal.
Still, he noted that Quebec opposition to the cross-Canada project is strong and it remains unclear whether Energy East is still viable in an era of lower crude prices and demand.
There are few other details available on the deal that Kinder Morgan has struck with the B.C. government. But University of Calgary economist Trevor Tombe said a key question is whether the pipeline firm is able to pass the cost of the deal onto shippers – primarily oil sands producers.
Prof. Tombe said the payments are akin to B.C. placing an extra tax on the pipeline for crossing a provincial boundary and adds to what are already hefty interprovincial-trade barriers.
Given the political and environmental opposition to new oil pipelines, he said, this deal might be an exception. "But it could lead to substantial problems if provinces start doing this on other types of shipments – including rail and trucking."
Kinder Morgan said this week that its board still needs to make a final investment decision on the Trans Mountain expansion project but announced that construction is scheduled to begin this fall.