Trudeau’s decision to buy Trans Mountain doesn’t make sense, say experts

In an extraordinary decision that cements its political commitment to Alberta and the oil industry, the Trudeau government today announced that it will pay $4.5 billion to buy the Trans Mountain pipeline from Kinder Morgan — the existing pipeline that has been carrying crude oil for decades now, as well as “integral assets” related to the construction of the new controversial twinning line that will run from Edmonton to Burnaby, BC.

The federal government’s primary justification for the nationalization of this pipeline project is “jobs and the economy”. Indeed, as many as 2,500 temporary and permanent jobs will be at stake this summer if construction of the pipeline remains stalled. In the long-run, oil industry experts estimate that if there aren’t additional pipelines built to free up more oil to move to the coast of BC, Canada could lose out on an estimated $19 billion.

“We said we would get the pipeline built and we’re getting it built,” declared Alberta Premier Rachel Notley.

But the decision by the Liberal government to buy up the pipeline doesn’t necessarily ensure that the project will actually get done. The anti-pipeline movement is strong and has been gaining momentum over the last few months. A legal challenge launched by seven First Nations who allege that they weren’t consulted on a project that goes through their land has reached the Federal Court of Appeals.

Prominent members of the Secwepemc First Nation in the interior of BC, which will see roughly half the pipeline run through its territory, called the government’s decision a “violation of Indigenous Law and unceded title and rights to our lands”. In a press release, Grand Chief Stewart Phillip, President of the Union of BC Indian Chiefs expressed his shock as the decision, remarking “no means no – the project does not have the consent it requires, and we will not stand down no matter who buys this ill-fated and exorbitantly priced pipeline."

“This doesn’t change a thing,” said BC Premier John Horgan whose government has filed a reference case with the BC Court of Appeal to determine if it has jurisdiction over the Trans Mountain expansion.

Clearly, obstacles to complete the pipeline remain, regardless of who controls the project. And for different reasons, experts both left and right of the political spectrum are in agreement on one thing — that this wasn’t exactly the smartest decision on the part of the Trudeau government.

“It just doesn’t make a lot of sense. There are so many reasons why the pipeline is a bad investment and that’s why Kinder Morgan is backing away from it — they know it’s a toxic project,” Hadrian Mertins-Kirkwood, an economist with the left-learning Canadian Centre for Policy Alternatives told VICE News.

“And it looks like it’s not going to get built either because of all the serious court challenges that could stop the project,” he added. “There’s a lot of serious opposition here and if the courts say you can’t build then the government is on the hook for $4.5 billion.”

Prime Minister Justin Trudeau, however, claims that many of the legal challenges will “disappear” if the federal government owns the Trans Mountain pipeline.

“The project became too risky for a commercial entity to go forward with it, that’s what Kinder Morgan told us,” Trudeau told Bloomberg News Tuesday afternoon, adding that his government would “ensure” that the project gets built in order to “get our resources to new markets.”

Two months ago, Houston-based pipeline builder Kinder Morgan put the Trans Mountain expansion project on hold, citing growing protests and opposition from the B.C. government, as an untenable situation for the company’s bottom line. The project is three years behind schedule, and Kinder Morgan has already spent $1.1 billion on it. Attempts by the federal government to incentivize Kinder Morgan to stay the course by offering a sizeable compensation for the project were brushed aside by company management.

"The problem isn’t that Kinder Morgan ran out of money. They were not broke, they were exiting the project because of political objections to it. Today’s decision does not address that issue," Ian Lee, Associate Professor at Carleton University’s Sprott School of Business told VICE News. “They determined that the political risks were too great, they had no problem with the financial risks.”

It is theoretically possible that the government could make some money by owning the pipeline project — if construction is complete and the pipeline is sold to a third party at a profit, that would perhaps justify the $4.5 billion investment of tax dollars.

But that scenario is unlikely, says Lee, who believes that the Liberal party only chose to bail out Kinder Morgan because they had run out of options after guaranteeing Canadians that the pipeline would be built. “Liberals are realizing they are extremely vulnerable on this issue and they needed a bold stroke to show the people that they were doing something to make this happen. This is purely political.”

Mertins-Kirkwood agrees, though he says that he’s still struggling to understand the political calculus. “I get that the government is making the oil industry happy, I get that they’re making Albertans happy, but they’re losing out on Liberals who care about meeting our climate change goals and many voters in BC for that matter.”

Lee believes that any kind of real solution to the Trans Mountain issue will have to come from First Nations involvement in the project. “The only serious solution that’s going to carry the day is First Nation ownership of the pipeline. If you can bring Indigenous leaders on board and say that you’re complete owners of the pipeline now, that might help.”

The federal government is expected to close the purchase of Trans Mountain in August. Construction of the pipeline is set to resume in a month, while multiple protests continue to take place against the project all this week.

Cover image: Prime Minister Justin Trudeau is interviewed by Bloomberg's Senior Executive Editor for Economics, Stephanie Flanders, as part of Bloomberg Businessweek Debrief series in Toronto, Tuesday, May 29, 2018. (THE CANADIAN PRESS/Marta Iwanek)