Backstop deal may be last hope for TransMountain pipeline, says former oil executive
'It's not a handout, it's not a payment or bailout'
The federal government's plan to financially backstop the TransMountain pipeline project may be the last, best option to salvage the proposal, says a former Alberta pipeline executive.
Ottawa announced Wednesday it would secure Kinder Morgan against losses related to political opposition to the project — just weeks ahead of the company's self-imposed drop-dead date.
The offer may be the only solution that can save the beleaguered project, said Dennis McConaghy, former executive vice-president of corporate development at TransCanada Corporation.
"Even though Kinder Morgan has an approval, the project still faces some serious risks with respect to getting completed and the government has recognized that," McConaghy said in an interview Thursday with CBC Radio's Edmonton AM.
"The idea of an indemnity is the probably the most plausible way, the most plausible intervention, the federal government could make to reduce the completion risk."
'It's not a handout'
Finance Minister Bill Morneau wouldn't say how much the government is willing to spend to cover losses accumulated by British Columbia's efforts in obstructing the project.
Kinder Morgan has neither accepted nor rejected the offer. The company has threatened to abandon the project completely if a clear path forward isn't found by May 31.
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Indemnity is not a corporate hand-out, McConaghy said, but one of the few options left to salvage the $7.4-billion pipeline that would move heavy oil to the West Coast.
"It's not a handout; it's not a payment or bailout; it's indemnity, which is a mitigation of risks," said McConaghy, author of Dysfunction: Canada After Keystone XL.
Kinder Morgan and Ottawa are likely already "haggling" and need to strike a deal within the next two weeks, he said.
"It's not a situation that anyone would want to be in, but in the short run, this is the only way we're going to salvage a project that means so much economically to Canada, and certainly to Alberta."
That process of having a third party step into the breach is not going to be easy.- Dennis McConaghy
The federal government said that if Kinder Morgan bails, the government would reimburse any financial losses incurred by other investors willing to take the project on.
It's unclear if any companies are keen to take on the pipeline, but McConaghy said it would be a messy process.
A change in ownership could trigger an "entire redo" of the regulatory process and would not calm stubborn opposition to the oilsands link.
"It's going to be very protracted to find a way of having a third party buy the TransMountain pipeline," McConaghy cautioned.
"It will be equally difficult to buy the regulatory assets that exist today that relate to the expansion.
"That process of having a third party step into the breach is not going to be easy."