Published: Wed, May 30, 2018
Sci-tech | By Carrie Guzman

Federal government to buy Trans Mountain pipeline for $4.5B

Federal government to buy Trans Mountain pipeline for $4.5B

Canada said Tuesday it would buy Kinder Morgan Inc.'s Trans Mountain pipeline, with its expansion project and shipping terminal, for $3.5 billion before eventually selling the project to a new buyer.

In 2016, the B.C. provincial government said that it did not support the pipeline because Kinder Morgan did not provide a plans for oil spill prevention and clean up efforts.

Canada's finance minister, Bill Morneau, listens during a news conference with Natural Resources Minister Jim Carr about the state of the Kinder Morgan pipeline expansion in Ottawa on May 29, 2018. The pipeline, running from the oil sands of Alberta to a port in the Pacific province of British Columbia, would allow Canadian crude to gain greater access to foreign markets and higher prices.

Green Party of Canada leader Elizabeth May, who is an MP in BC, tweeted that Kinder Morgan was "laughing all the way to the bank" and accused the government of subsidising fossil fuels.

"This move sets a bad precedent and signals to other prospective investors that large projects such as pipelines can not be built by private industry in Canada", said Aaron Wudrick, federal director of the Canadian Taxpayers Federation.

Ottawa's decision to purchase the pipeline comes after months of uncertainty in Western Canada, where the federal government, Alberta and British Columbia have been embroiled in an escalating battle over the flow of bitumen.

Ottawa could also deploy the police and troops to maintain a barrier between protesters and construction workers.

Horgan told reporters in Victoria the federal government's takeover of the project changes the legal situation, but his contentious legal action isn't aimed at any specific project. Kinder Morgan has been under pressure for carrying too much debt, he added, and while the company may have been legitimately concerned about the prospect of delays, it was also presented a good opportunity to de-leverage. But British Columbia has refused to yield. And let's not forget 2009, when the federal and Ontario governments spent more than $13 billion to bail out North American auto makers.

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"It's a mess out there", said a Calgary industry source not authorized to speak publicly.

For those opposed to the pipeline twinning, including Indigenous leaders and environmentalists, the bailout probably came as a "big surprise, if not a shock", he said. Kinder Morgan previous year said it was about $7.4 billion, plus about $1 billion already spent - an estimate that's now considered low.

Kean did not say why he chose to sell rather than absorb the risk of further delays.

But even if the Keystone XL pipeline is built, Canada is still selling 99% of its oil to refineries in the US and that narrow market means they now get far less per barrel than they would if they had access to an alternative market. It's actually better for Kinder Morgan than it is for Canada.

Scheer said the prime minister was cutting a cheque with taxpayers' money for "shareholders in a Texas-based company", while at the same time claiming he wants to attract investment in Canada.

The fact the federal government needed to buy Trans Mountain to ensure the project goes ahead does not bode well for the industry, said Chris Bloomer, CEO of the Canadian Energy Pipeline Association. It will be a key test of Trudeau's bid to balance the environment and the economy by backing the C$7.4 billion pipeline expansion while pushing a national carbon price to reduce greenhouse gas emissions. The contribution will convert into equity in the pipeline.

"The federal government has made a choice, a decision that was motivated by the decisions of a private company that gave a deadline, not to me, not to the people of British Columbia, but to someone they characterized as stakeholders", Horgan said.

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