Morneau has promised to 'indemnify' Trans Mountain. No one really knows what that means
Canada May 16, 2018 12:25 pm Morneau has promised to âindemnifyâ Trans Mountain. No one really knows what that means
Finance Minister Bill Morneau says if Kinder Morgan wants to abandon plans to build the Trans Mountain pipeline expansion, there are plenty of other investors out there willing to take up the cause.
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The federal government will âindemnifyâ the Trans Mountain pipeline expansion to ensure that the project is completed and Canada can sell its oil on international markets, Finance Minister Bill Morneau said on Wednesday.
And if Kinder Morgan abandons plans to build it, the federal government stands ready to offer up that guarantee to other investors willing to step to the plate, the minister added.Story continues below
READ MORE: If Kinder Morgan bails on Trans Mountain pipeline, other investors welcome: Morneau
The announcement comes just weeks away from the May 31 deadline the energy infrastructure giant has given Ottawa to solve the legal hurdles facing the project. Faced with stern opposition from the B.C. government of Premier John Horgan, the company paused all non-essential work on its $7.4-billion plan to nearly triple the capacity of its Trans Mountain pipeline, which carries Alberta crude from Edmonton to Burnaby.
âWe are willing to indemnify the Trans Mountain expansion against unnecessary delays that are politically motivated,â Morneau said. âIf Kinder Morgan is not interested in building the project â" we think plenty of investors would be interested in taking on this project, especially knowing that the federal government believes it is in the best interest of Canadians and is willing to indemnity to make sure it gets built.â
WATCH: Ottawa reaffirms support for Trans Mountain pipeline
But the finance minister was scant on details when asked about wha t, exactly, Ottawa is prepared to do to back the project, leaving plenty of questions unanswered. Hereâs what we still donât know:
How big a cheque is the government prepared to write?
Morneau did not say. The finance minister didnât discuss whether taxpayersâ exposure could be in the millions or billions of dollars, or whether Ottawa is prepared to impose a cap on it.
How close is the government to striking a deal with Kinder Morgan?
Morneau refused to discuss the details of the governmentâs discussions with the company, saying simply that ânegotiations are ongoing.â
However, the fact that the announcement came on the very day that Kinder Morgan is holding its annual meeting was widely interpreted as an effort by Ottawa to ratchet up the pressure on the company ahead of the May 31 deadline. The same goes for Morneauâs allusion to the existence of other investors willing to take on the pipeline expan sion.
READ MORE: Trans Mountain pipeline: Some of the main arguments for and against it
Can another investor really step in to expand Kinder Morganâs pipeline?
The idea that other investors would step in to finish the work on Trans Mountain has its skeptics. After all, the current plan is to build a pipeline running parallel to Kinder Morganâs existing infrastructure. Itâs unclear how another actor could fill the companyâs shoes.
What form will the governmentâs financial support take?
Morneau didnât elaborate on what indemnity means. Asked about whether the government could take an equity stake in the Trans Mountain expansion, which would allow it to share in any profits from the project, the minister didnât explicitly rule out that option.
WATCH: Morneau outlines three steps being taken to promote Trans Mountain
Is Ottawa going to cover costs stemming specifically from Horganâs opposition or challenges from other actors as well?
Morneau drew a clear link between Horganâs efforts to stonewall the pipeline and Ottawaâs decision to intervene.
âWe believe that what Premier Horgan has done is unconstitutional,â the finance minister told reporters.
Ottawa is offering indemnity against âthat specific risk,â he noted, adding that no private investor can be expected to solve a challenge coming from a provincial government refusing to allow an infrastructure process to proceed despite federal jurisdiction.
But the question remains of how the government would, in practice, distinguish between extra costs incurred by Kinder Morgan because of opposition from Horgan or other hurdles like protests and legal challenges from Aboriginal groups.
WATCH: Morneau calls out Premier Horganâs âdeliberate attempts to frustrateâ Trans Mountain
Does this create a precedent for government intervention in other projects?
Another question is whether the Trudeau governmentâs decision to shore up Trans Mountain will create the expectation that it will do the same for others.
Morneau repeatedly called the current pipeline stalemate âan exceptional situation,â likely an attempt to telegraph that Ottawa isnât opening its chequebook to every investor stuck with an expensive and controversial infrastructure project.
Some analysts believe thereâs a clear economic case for the government to step in.
âWith costs rising because of delays caused by the B.C. gov ernment, Kinder Morganâs prospect of making money is looking dicey. That creates a disconnect between the private incentive of the company and whatâs best for society,â Benjamin Dachis associate director of research at the C.D. Howe Institute told Global News via email.
However, he added, âwe need to remember that governments should not be in the pipeline business.â
The best way for Ottawa to provide support would be an arms-reach, short-term loan to Kinder Morgan to help it cope financially with political uncertainty. The loan would need to be repaid at the end of construction, Dachis said.
But government support shouldnât be unlimited.
âIf Kinder Morgan demands too much, then Ottawa should walk away.âReport an error
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