OTTAWA – The federal Liberal government is spending $4.5 billion to buy Trans Mountain and all of Kinder Morgan Canada’s core assets, Finance Minister Bill Morneau said Tuesday as he unveiled the government’s long-awaited, big-budget strategy to save the plan to expand the oilsands pipeline.
In return, Kinder Morgan will go ahead with its original plan to twin the pipeline this summer while the sale is finalized, which likely won’t happen until August, Morneau told a news conference in Ottawa.
READ MORE: Here is everything you need to know about Ottawa’s plan to (maybe) buy the Kinder Morgan pipeline
Once the sale is complete, he said, Canada will continue the construction on its own, with a view to eventually selling the whole thing down the road, once market conditions would allow it to get the best price.
Morneau presented the options during an early-morning cabinet meeting Tuesday before ministers signed off on the chosen option, which comes just days before the company’s self-imposed May 31 deadline and is still subject to the approval of Kinder Morgan shareholders.
“We believe this is the best way to protect thousands of well-paying jobs and the safest and most effective way to get our resources to world markets,” Morneau told a news conference in Ottawa after the meeting, Natural Resources Minister Jim Carr at his side.
“Make no mistake: this is an investment in Canada’s future.”
Pressed about why the federal government’s $4.5-billion price tag was so much lower than Kinder Morgan’s stated $7.4-billion project value, Morneau said Ottawa was purchasing all the relevant assets – but he studiously avoided saying whether construction would increase costs.
LISTEN: Energy Minister Jim Carr joins Danielle Smith to discuss the Trans Mountain Pipeline purchase
“We are purchasing the assets; we are purchasing the existing assets, and the investment in the twinning of that pipeline, and those assets are what is required for us to move forward with the expansion,” he said.
“It allows us to move forward with the investments required to get the expansion completed and delivering the value that we know it can deliver to the Canadian economy.”
READ MORE: NDP leader Jagmeet Singh sides with B.C. over Alberta in Trans Mountain dispute
He hinted, however, that there would be additional costs, to be defrayed by the revenue generated by the pipeline itself.
“It creates effectively a toll, a user-pay, to be paid by the oil companies. So the additional investments will be dealt with in that way,” Morneau said.
“This is a project that will not have a fiscal impact. When you’re making an investment, you’re buying an asset, and that is something that goes on the balance sheet. So there is no fiscal hit with this purchase.”
Export Development Canada will finance the purchase, which includes the pipeline, pumping stations and rights of way along the route between Edmonton and Vancouver, as well as the marine terminal in Burnaby, B.C., where oil is loaded onto tankers for export.
READ MORE: Trans Mountain pipeline project purchase ‘major step forward,’ Rachel Notley says
Morneau said the federal government does not plan to be a long-term owner and is in negotiations with interested investors, including Indigenous communities, pension funds and the Alberta government, which will provide funding for any unexpected costs that arise during construction.
“To investors considering Canada as a place to build big, important, transformative projects like the Trans Mountain expansion, we want you to know that you have a partner in Ottawa,” Morneau said.
READ MORE: No suitors emerge for Trans Mountain pipeline stake as Kinder Morgan deadline looms
“One who not only respects the rule of law, but who understands the challenges you are up against and will work with you to find solutions that work for everyone.”
LISTEN: Official opposition leader Andrew Scheer questions taxpayer funded expansion
Alberta Premier Rachel Notley cheered the news on Twitter.
“This is a major step forward for all Canadians. We have met the deadline,” she tweeted. “This project has more certainty than ever before. We won’t stop until the job is done!”
The plan – similar to how Canada financed and managed shares in General Motors and Chrysler in 2009 during the financial crisis – will include a new Crown corporation to manage the project.
The deal brings some certainty to an expansion project that has been on the rocks ever since B.C. went to court in hopes of blocking it, fearing the impact of a spill of diluted bitumen, the raw output from Alberta’s oilsands.
LISTEN: Danielle Smith reviews the Kinder Morgan deal, its strengths and weaknesses, with Tim Pickering of Auspice Capital Advisors
Steve Kean, chairman and chief executive of Kinder Morgan Canada Ltd., said the deal represents the best opportunity to complete the expansion project.
“We’ve agreed to a fair price for our shareholders and we’ve found a way forward for this national interest project,” he told a conference call with financial analysts.
Ottawa has the constitutional authority to build interprovincial projects like pipelines, but B.C. Premier John Horgan has gone to court to get a judge to weigh in on whether B.C.’s jurisdiction for the environment would allow him to regulate what flows through the pipeline.
The ensuing uncertainty, paired with vociferous opposition from environmental groups and some Indigenous communities in B.C., prompted Kinder Morgan to halt investment until the federal government could inject some certainty into the project.
“The previous government spent 10 years pitting the environment and the economy against each other; they pitted us against each other. It polarized us. That is not who we are,” Carr told the news conference.
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“The majority of Canadians support this project. The majority of Canadians understand that we are in a transition to a clean-growth century, and we will not get there overnight. But we will get there.”
Ottawa is pressing ahead, firmly of the opinion there is no doubt about its jurisdiction. It is also confident it will prevail in a Federal Court challenge by some Indigenous communities over its approval of the pipeline, a ruling on which is due any day.
A Finance Department official says that as a Crown project in the national interest, Canada has special allowances to proceed that may not be available to a private-sector company.
Canada approved the project in November 2016, following an expanded environmental review process that included additional consultations with Indigenous communities and assessing the amount of additional emissions likely to result from additional production.
LISTEN: Andrew Scheer joins Rob Breakenridge to explain why the Trans Mountain deal is “a sad day” for Canadians
Prime Minister Justin Trudeau has long insisted the project is in Canada’s national interest and is a pivotal part of the country’s economic future.
Canada loses $15 billion every year on the sale of oil because the U.S. remains its only export customer, resulting in a lower price, Trudeau argues. A lack of capacity in pipelines or in rail cars to ship oil produced in Alberta is also hurting Canada’s energy sector.