Analysis

Bill Morneau's Kinder Morgan surprise comes with huge price tag, lots of political risk: Chris Hall

Nationalizing an oil pipeline - even temporarily - was never the first option for Finance Minister Bill Morneau. But buying Kinder Morgan's Trans Mountain pipeline, and taking over the proposed expansion, was the only option that allows the Liberals to deliver on their promise to get the work done.

Ottawa says buying the company's Trans Mountain pipeline is the only way to ensure the expansion gets built

Finance Minister Bill Morneau says the decision to buy Kinder Morgan's Trans Mountain pipeline for $4.5 billion will guarantee work on the project goes ahead. (Christopher Katsarov/Canadian Press)

Bill Morneau handed out his version of a Kinder Morgan surprise on Tuesday, announcing the federal government will buy out the company's Trans Mountain pipeline in its entirety in order to ensure the proposed expansion of the line goes ahead.

Nationalizing an oil pipeline — even temporarily — was never the first option for the finance minister. But it became apparent during Morneau's negotiations with Kinder Morgan that it was the only one that would allow the Liberals to deliver on their promise to get the work done.

"The Trans Mountain project is of vital interest to Canada and Canadians," Morneau said on Tuesday. "Getting (it) built will preserve thousands of good, well-paying jobs."

But getting it done, and keeping that promise, comes with a steep price tag.

Taxpayers will foot the $4.5 billion purchase price. That sum doesn't include what could be billions of dollars in construction costs, or the costs of cleaning up a spill — although Morneau said Alberta's government will share the cost of any unexpected or emergency cost overruns.

And there are no guarantees that the pipeline will return the investment when (and if) a buyer can be found sometime in the future — that selling the line will fetch an asking price that realizes the full value of the public money being invested.

Morneau said many private sector investors expressed interest in the project, though he failed to explain why none of them were prepared to take the same risk with shareholders' money he's taking with taxpayers' money, given the staunch public opposition and ongoing protests against the project at the pipeline's terminus in Burnaby, B.C.

Finance Minister Bill Morneau explains the reasons behind the government's decision to buy the Trans Mountain pipeline for $4.5 billion. 2:21

He talked a good deal about how buying the project counters the political uncertainty created by British Columbia's NDP government. B.C. Premier John Horgan remains steadfast in his opposition to the project and has asked the province's highest court to rule on whether it has the constitutional right to impose environmental restrictions.

Big price tag, bigger political risk

Others will dissect the business case behind the federal government's decision, but the political calculations are just as important.

For Morneau and Prime Minister Justin Trudeau, the decision to spend billions of dollars carries considerable risk now and into the future.

There's the prospect of continued protests. There's the possibility, however remote, of a court ruling that sides with the Horgan government.

British Columbia will be a key battleground province in next year's election — a province where all three major political parties are competitive, the home base for Green Party Leader Elizabeth May.

May and New Democrat MPs oppose the project, insisting it is inconsistent with Canada's commitment to reducing climate-changing emissions and that it poses an unacceptable spill hazard to the B.C. coastline.

The federal government’s decision to buy the Trans Mountain pipeline for $4.5B has sparked fierce debate, but it’s worth pointing out there’s a long tradition of government financial support in the energy sector. No investment will ever be risk-free, but if the past is any indication, it's proven rewarding. 2:06

The Conservatives support the expansion, but insist the Liberals' handling of the file has been so inept that the only option left to the government — after rejecting the proposed Northern Gateway pipeline and seeing Trans-Canada abandon its planned Energy East line — was to build this expanded pipeline with taxpayers' money.

"He has chased away the investment on two other major pipelines … and now he's asking taxpayers to pay for the third," Conservative Leader Andrew Scheer said Tuesday.

The Liberals, befitting their position as the centrist party, come down the middle. Trudeau went into Tuesday's cabinet meeting repeating the government's mantra that "we're going to get that pipeline built."

On The House midweek podcast, Chris Hall analyzes the federal government's decision to take over Kinder Morgan's controversial expansion of the Trans Mountain pipeline. Then, we hear from Chief Robert Chamberlin, the vice-president of the Union of British Columbia Indian Chiefs. 17:40

He and his minister maintained that tripling Trans-Mountain's capacity from 300,000 to 890,000 barrels a day is in the national interest.

Putting a price on the national interest

The Liberals can — and likely will — argue that this decision also takes control of a vital piece of energy infrastructure away from a U.S.-based company.

"We've been saying for many, many months that the pipeline is good for the country not only for the many thousands of jobs it creates, but getting a better price for our crude internationally," Natural Resources Minister Jim Carr told the Commons on Monday.

Natural Resources Minister Jim Carr says that the Trans Mountain pipeline purchase can help Canadians achieve a clean environment and good jobs. 1:48

This isn't the first time a federal government has nationalized a project, or spent billions of dollars of taxpayers' money on a private company. It's not the first time Ottawa put a price tag on the national interest.

Trudeau's father created Petro-Canada in the 1970s to counter the overwhelming U.S. dominance of the country's oil and gas sector.

Ottawa continues to hold an 8.5 per cent share in Hibernia — making it the fourth largest stakeholder behind oil giants Exxon, Chevron and Suncor. The project, which began production in 1997, is a commercial success.

But taxpayers came up roughly $3.5 billion short in the 2009 bailouts of Chrysler and General Motors, even though the Conservative government of Stephen Harper insisted the investment saved the auto sector and thousands of jobs in this country.

It's too early to say whether buying this pipeline will be a money maker or loser for taxpayers, whether the court case started by the B.C. government will drag on for months or even years, or whether the Liberals will get political credit for the decision when they go to the polls next year.

Add it all up, and Bill Morneau's bold decision to spend billions on a controversial pipeline may yield another, very different Kinder Morgan surprise next year.

Question Period gets confrontational over pipeline purchase 0:53

About the Author

Chris Hall

National Affairs Editor

Chris Hall is the CBC's National Affairs Editor and host of The House on CBC Radio, based in the Parliamentary Bureau in Ottawa. He began his reporting career with the Ottawa Citizen, before moving to CBC Radio in 1992, where he worked as a national radio reporter in Toronto, Halifax and St. John's. He returned to Ottawa and the Hill in 1998.

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