Danielle Smith: Brace yourself for government ownership of Kinder Morgan Canada

Let’s say Kinder Morgan pulls the plug on the Trans Mountain Expansion this week. Who are the mystery investors finance minister Bill Morneau claims are waiting in the wings itching to take on the project?

I’ve said before that I don’t think there is a private investor. Enbridge got burned when Justin Trudeau’s government rescinded approval for the Northern Gateway project. TransCanada got burned when the Trudeau government changed the NEB rules to include upstream and downstream carbon dioxide emissions, and the company cancelled the project over uncertainty it would ever be approved.

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It’s hard to imagine either company stepping in now, if Kinder Morgan thinks the project is too iffy to continue.

Besides, the mechanics of how this deal is supposed to work have been puzzling me, since the system we have for building pipelines in this country is proponent driven. The company owns the right of way. It paid the landowners for access, negotiated with First Nations, forked over the money to get the environmental and regulatory reviews done, maintained the relationships with the communities along the line.

It seems inconceivable that Kinder Morgan would just hand over a portion of its right of way to a competitor, and put all those delicate relationships for its existing pipeline at risk, and just hope for the best.

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So even if there are no private investors, there are plenty of government ownership options: the Alberta Government could buy in through the Heritage Savings Trust Fund or perhaps even AIMCO, which manages the province’s public sector pension funds. Or perhaps the federal government could by in through the Canada Pension Plan Investment Board. Or perhaps a straight up purchase out of general revenues by either the federal or provincial governments, or by both, could be in the offing.

But it is still hard to imagine why Kinder Morgan would want to become a joint venture partner with the government and give up space on its right of way.

Richard Masson, former CEO of the Alberta Petroleum Marketing Commission and executive fellow with the University of Calgary’s School of Public Policy, has given some thought to how this might play out.

LISTEN: Richard Masson, former CEO of the Alberta Petroleum Marketing Commission and executive fellow with the University of Calgary’s School of Public Policy

Kinder Morgan Canada has a market cap of $6 billion. He said government could buy it (or at least the 80 per cent owned by the U.S.-based parent company) outright. If the new owner maintains the existing management team, — and Masson has high praise for Kinder Morgan project leader Ian Anderson — the transition could be seamless. Then, after the pipeline is built, the government shares could be reissued to the public to repay the government’s stake and return the entire project to the private sector.

When I asked Masson about whether this kind of nationalization would send a negative message to the international investor community, he pointed out that our investment reputation is already a shambles. Government buying control of the company to get the project built may be unsettling, but failing to get the project built at all would be disastrous.

If Kinder Morgan is out, there just aren’t very many good options. Masson’s proposal may be the best we can hope for. One way or the other, we’ll know by Thursday.

Danielle Smith is host of  The Danielle Smith Show on Global News Radio 770 Calgary. She can be reached at danielle@770chqr.com.