Day 6

Nationalizing Trans Mountain: What can we learn from past government bailouts?

Former civil servant Alan Freeman says the bailouts of the auto industry and Hibernia offer insight into what's ahead with Trans Mountain.

'Bailing out failing companies is as Canadian as canola and maple syrup,' says Alan Freeman

Steel pipe to be used in the oil pipeline construction of Kinder Morgan Canada's Trans Mountain Expansion Project sit on rail cars at a stockpile site in Kamloops, British Columbia, Canada May 29, 2018. (Dennis Owen/Reuters)

While the Canadian government's plan to buy the Kinder Morgan pipeline came as a surprise to some, Alan Freeman says bailing out private companies "is as Canadian as canola and maple syrup." 

This week, finance minister Bill Morneau announced that the federal government would buy the Kinder Morgan pipeline — and related infrastructure — in a $4.5 billion deal. 

Freeman, an iPolitics columnist and University of Ottawa senior fellow, said it's certainly not the first time a government has done something like this. 

He told Day 6 host Brent Bambury that history indicates that government bailouts can be successful. However, it remains to be seen whether Trans Mountain will follow the same trajectory.

Freeman said Canadian government's decision to purchase a stake in the Hibernia oil project more than two decades ago, and later to bail out the automotive industry in 2009, are two examples of deals that ultimately paid off. However, neither held any guarantees for a return on investment at the time.

By comparison, Freeman said this week's Trans Mountain deal seems less financially risky.

Finance Minister Bill Morneau reacts to questions at the National Press Theatre during a press conference in Ottawa on Tuesday, May 29, 2018. (Sean Kilpatrick/The Canadian Press)

"They're buying an existing pipeline. There's oil going through there today. So, that is an existing business which right off the bat will [provide] revenue," he said.

But he cautioned that the deal comes with a heightened level of political risk.

While Morneau has insisted that the pipeline's expansion will continue now that it is a Crown corporation, the deal hasn't quieted the project's vocal opposition.

"The big risk with Trans Mountain is can they get it built," Freeman said. "That's the risk that Kinder Morgan didn't want to take."

No guarantees 

Both the Hibernia and the GM-Chrysler bailouts were mentioned by analysts and politicians alike this week in relation to the Trans Mountain pipeline deal.

When the federal government bought an 8.5 per cent share of the Hibernia oil project in 1993, the project — and province — was in turmoil. The price of oil had collapsed, leading a major investor to pull out. The year before, the cod fishery had closed.

"Newfoundland was in terrible shape," Freeman said.

The Mulroney government's decision to invest in Hibernia carried no guarantee of a return on investment. It was a sort of "doubling down," according to Freeman, as the government had already committed billions to the project in grants and loan guarantees.

Not everyone was convinced it was the right move.

"There was an analyst, an oil analyst, [who said] 'I've never seen a [less] economic project in my life. This is going to be basically a disaster,'" Freeman said. 

But the investment proved lucrative.

"By the end of 2016 they had already pulled out a billion barrels of oil. So twice as much as they thought were there originally," he said.

A tug positions itself near the base of the Hibernia platform in Bull Arm, in Newfoundland's Trinity Bay, in May 1997, before the massive structure was towed out to the Grand Banks. (Jonathan Hayward/The Canadian Press)

Automotive industry bailout worth the losses

The financial stakes were just as high in 2009 when Stephen Harper's Conservative government, along with Ontario's provincial government, agreed to spend over $13 billion to keep the Canadian car industry afloat.

At the time, U.S. President Barack Obama had already committed to similar action south of the border, putting pressure on Harper to follow suit.

Those stakes made Harper's move less politically risky, Freeman said. 

"If [the U.S.] had done it and Canada had stayed by the sidelines ... GM and Chrysler probably would have shut down their Canadian operations."

Still, when the Canadian government finally sold off its common shares in GM in 2015, it was $3.5 billion short of breaking even.

But as with the Hibernia oil fields investment, Freeman believes the automotive industry bailout was the right move.

"I think that in retrospect most people will say, 'yeah, it was worth it.'"

Engine Specialist Jennifer Souch assembles a Camaro engine at the GM factory in Oshawa, Ont., on June 10, 2011. (Frank Gunn/Canadian Press)

Trans Mountain's biggest challenge

Freeman argues government investments like these shouldn't be looked at as exclusively financial investments.

"We should make sure government is not just a financial investor like putting in 10 billion bucks hoping to get out 15," he said. "It has other stakeholders. It's trying to keep the economy going, etc.

"And I guess you should look at Trans Mountain in the same way."

Still, Freeman said the biggest risk facing the Trans Mountain pipeline project is a political one.

Alberta Premier Rachel Notley​ and B.C. Premier John Horgan are at odds on the Trans Mountain pipeline expansion. (Left: Richard Marion/CBC Radio-Canada, Right: The Canadian Press/Darryl Dyck)

"What was quite interesting ... when the auto industry was bailed out, is that essentially the other provinces — Alberta, Quebec — didn't say 'boo.' That's because everybody was scared stiff because of the depth of that recession." 

By contrast, the Trans Mountain pipeline project continues to face uniquely vocal opposition from environmental and Indigenous groups alike — not to mention the province of B.C.

But Freeman said these deals are always messy.

"If they weren't messy, the government wouldn't be involved."

To hear the full interview with Alan Freeman, download our podcast or click the 'Listen' button at the top of this page.