The only clear winners out of Tuesday’s decision by the Government of Canada to nationalize the Trans Mountain Pipeline are Kinder Morgan shareholders.
I had a listener ask whether Kinder Morgan could refuse the purchase. The actual question is, why would it? President and CEO Steve Kean seemed positively jubilant during his investor press conference on Tuesday morning.
I asked Tim Pickering, chief investment officer with Auspice Capital Partners, if he could help explain why.
Here it is: the company will receive $4.5 billion from the government and it has only a minuscule amount of debt ($100 million). So it basically has the entire amount of money to invest in doing something else.
It’s pretty clear what that is likely to be: Kinder Morgan has a major rail-by-oil operational hub in Edmonton. Oil is expected by some analysts to go to US$100 a barrel. The Trans Mountain Pipeline will take years to complete.
So it’s easy to see how Kinder Morgan could make a killing capitalizing on Canada’s pipeline bottleneck problem by offering expanded oil-by-rail services.
That should be great for B.C. Premier John Horgan’s government pension plan. The BIP — which runs B.C.’s public pension funds — invested in Kinder Morgan stock while he was beating the company down; now that Kinder Morgan has been freed of this albatross, it may rise back to its historic high levels and give the pension fund a sizable return.
WATCH ABOVE: Ottawa’s purchase of Kinder Morgan has ‘failed’ BC, Andrew Scheer says
Meanwhile, Premier Horgan says nothing has changed for him. He doesn’t give a whit who owns the pipeline. He still intends to assert that B.C. has a right to decide what goes through it.
Green Leader Elizabeth May also hasn’t given up the fight, even after pleading guilty to criminal contempt of court. She’s going to continue to fight the pipeline right alongside the protesters as a matter of conscience.
- Toronto’s offices are emptying out. The city wants to know what to do with them
- Capital gains changes could have ‘irreversible’ effects, business groups warn
- Could notwithstanding clause be used on abortion? Poilievre’s office says ‘never’
- U.K. takes aim at allies like Canada, wants higher NATO targets
And even though this is the most important national issue Prime Minister Justin Trudeau has faced since getting elected, he’s nowhere in sight. Finance Minister Bill Morneau has taken the lead.
There are only two reasons why this could be. One, Trudeau is, as UCP Leader Jason Kenney has contended, not smart enough to grasp and communicate the details of how this deal is going to work. Or two, he is still trying to curry favour with the environmental extremists and First Nations activists he courted to win the last election.
Either way, it doesn’t do much to inspire confidence. When activists are chaining themselves to government owned equipment, what will he do then? I’m guessing, not much.
Nor does it inspire confidence that Morneau couldn’t — or wouldn’t — answer questions on how much this is going to cost Canadian taxpayers. We know the Alberta government is prepared to pony up to a $2-billion indemnity that will be turned into an equity stake at some point in the future. It’s still unclear to me how that is going to work — is Alberta expecting up to $2 billion in extraordinary costs associated with delays, legal challenges and dealing with protesters? I guess we’ll see.
But the math then appears to be this: $4.5 billion to purchase the existing pipeline, $7.4 billion to build the new pipeline, and $2 billion in extraordinary costs kicked in by the Alberta government for a total of $13.9 billion. Add a 50 per cent premium to put it through the federal government’s lens of climate change, gender equity, First Nations rights and making sure Quebec gets a share of the procurement, and we are looking at a project that is likely to cost more than $20 billion.
Keep in mind the federal government can’t even figure out how to pay its employees properly, or staff its courtrooms, or stop border crossers, or process refugee backlogs, or provide enough RCMP to police rural communities, or even build a skating rink to celebrate our sesquicentennial without it turning into a disaster.
I hope I’m wrong, but we may be witnessing the biggest boondoggle in Canadian history.
Danielle Smith is host of The Danielle Smith Show on Global News Radio 770 Calgary. She can be reached at danielle@770chqr.com.
Comments