Canada Ready To Compensate Kinder Morgan For Pipeline Losses

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Canadian Prime Minister Justin Trudeau approved the project in late 2016, after going through additional oversight to ensure it posed limited environmental risk and the appropriate indigenous groups were consulted.

Yet the province of British Columbia has vowed to use policy and legal levers to block the project until its own worries over environmental risk are addressed, and municipalities within the province have appealed to Canada’s top court to overturn regulatory decisions in favor of the pipeline. In response, Kinder Morgan has threatened to walk away from the project on May 31 unless the political and legal uncertainty the project faces is removed.

Mr. Morneau said during a news conference in Ottawa the delays faced by Kinder Morgan marked an “exceptional” situation, and British Columbia was acting in an “unconstitutional” way.

He said it isn’t reasonable to expect companies like Kinder Morgan to deal with disputes between governments.

“We have the ability to indemnify against the exceptional risk presented by the British Columbia government,” Mr. Morneau said. “We are taking action to ensure we deal with that uncertainty in a way that allows a commercially viable project to go forward.”

He didn’t address how much in losses the government is willing to cover, or whether Canada is considering an equity stake in the project. He said negotiations with the company are under way with the aim of a deal before the company’s May 31 deadline.

Should Kinder Morgan make good on its threat, Mr. Morneau said he is confident there are “plenty of investors” willing to step in and back the Trans Mountain expansion. Canada’s offer to indemnify for losses would also apply to new investors, he added.

Kinder Morgan Chief Executive Steve Kean said in a statement the company appreciated Mr. Morneau’s remarks, and his acknowledgment of the uncertainty the project faces. He added, however, the company and government “are not yet in alignment,” and May 31 remains a firm deadline to withdraw from the project unless its concerns are addressed.

British Columbia Premier John Horgan said his government is “acting well within its rights” to protect the province’s citizens. He said Mr. Morneau is putting taxpayer money on the line “while completely ignoring the risks to British Columbia.”

Robert Kwan, an analyst at RBC Dominion Securities in Toronto, said the financial backstop the Canadian government offered was largely expected in markets. Nevertheless, the government’s comments were “helpful,” and represented a positive for the share price in Kinder Morgan’s Canadian unit. Kinder Morgan Canada ’s share price rose 2% in Wednesday trading on the Toronto Stock Exchange to finish the day at C$17.08. Other pipeline companies, Enbridge Inc. and TransCanada Corp. were down 1.7% and 1.6%, respectively.

Yet some analysts and executives still fear damage to the industry.

“While this pipeline battle has the potential for derailing the significant expansion of Canada’s oil export capacity, it may do greater damage to the political standing of Canada as a stable location for the development of long-term energy projects,” said Allen Brooks, managing director at PPHB, a Houston-based boutique investment banking firm.

Al Monaco, CEO of rival pipeline operator Enbridge Inc., said the legal wrangling over Trans Mountain could cause investors to doubt whether regulatory approvals in Canada carry any weight. “It’s not good for anybody.”

There is also much at stake for Mr. Trudeau, who has put significant political capital behind this project. He has argued it is an example of how resource development can unfold while simultaneously having tougher environmental rules—such as a carbon tax—in place.

“Not only are we alienating business investment … but Trudeau is caught in a no-win situation—he’s going to end up alienating both the natural resource sector and the environmental movement,” said Brian Lee Crowley, managing director of Ottawa-based Macdonald-Laurier Institute, a think tank. “It’s hard to see an outcome that’s a political win for him.”

—Vipal Monga in Toronto contributed to this article.

Write to Paul Vieira at paul.vieira@wsj.com

Source : https://www.wsj.com/articles/canada-ready-to-compensate-kinder-morgan-for-pipeline-losses-1526479735

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