Backgrounder: Details of Agreement for the Completion of the Trans Mountain Expansion Project
Agreement in Principle Reached to Restart Construction in 2018 and Ensure Completion of the Trans Mountain Expansion
The Trans Mountain Expansion Project will create thousands of good, middle-class jobs, including in Indigenous communities; will enable more Canadian resources to reach international markets; and thanks to Canada's world-class Oceans Protection Plan, is a project that can be built while protecting Canada's coasts and waterways.
To ensure its timely completion, the Government of Canada has reached an agreement with Kinder Morgan to immediately restart construction on the Trans Mountain Expansion Project. The Government of Canada will guarantee financing for the 2018 summer construction season, through a loan guarantee from Export Development Canada. This guarantee will ensure that construction work on the project is restarted without delay.
In addition, the Government of Canada has reached an agreement with Kinder Morgan to purchase the company's Trans Mountain Expansion Project and related pipeline and terminal assets for $4.5 billion. The transaction is expected to close in August 2018.
This investment represents a fair price for Canadians and for shareholders of the company, and will allow the project to proceed under the ownership of a Crown corporation. The core assets required to build the Trans Mountain Expansion Project have significant commercial value, and this transaction represents a sound investment opportunity.
It is not, however, the intention of the Government of Canada to be a long-term owner of this project. At the appropriate time, Canada will work with investors to transfer the project and related assets to a new owner or owners, in a way that ensures the project's construction and operation will proceed in a manner that protects the public interest. Many investors have already expressed interest in the project, including Indigenous groups, Canadian pension funds and others.
Any purchaser of the project would be covered by a federal indemnity protecting them against any financial loss posed by politically motivated unnecessary delays, in line with the indemnity offered to Kinder Morgan by the Government on May 16, 2018.
The Government of Alberta will also contribute to get the project built. Alberta's contribution would act as an emergency fund and would only come into play if required due to unforeseen circumstances. The amount of Alberta's contribution could range from zero to a maximum of $2 billion. In return, Alberta will receive value commensurate to their contribution, through equity or profit sharing.
Existing profit sharing or other agreements established between Kinder Morgan and Indigenous groups would be maintained under these transactions.
The Trans Mountain Expansion Project was originally proposed as a way to deliver more Canadian oil resources to international markets. Twinning the existing Trans Mountain oil pipeline and expanding the Westridge Marine Terminal would increase the capacity of North America's only pipeline with access to the West Coast, and allow producers to receive a better price for their products. The original Trans Mountain Pipeline was built in 1953 and continues to operate safely today.
On November 29, 2016, the Government of Canada granted approval for the Trans Mountain Expansion Project. Earlier, on May 19, 2016, following a 29-month review, the National Energy Board concluded that the project is in the Canadian public interest and recommended the federal Governor in Council approve the expansion, which it did. In addition, the British Columbia Environmental Assessment Office issued an environmental assessment certificate, allowing the Trans Mountain Expansion Project to proceed.
Kinder Morgan Inc., owner of the Trans Mountain Pipeline and the Trans Mountain Expansion Project, had been advancing the pipeline project, on a commercial basis, for several years. The company had worked diligently to obtain all the necessary approvals and permits required to proceed with the project and has done so in full accordance with Canadian law.
However, unnecessary and politically motivated delays created a level of uncertainty around the project's future, so much so that Kinder Morgan felt unable to proceed as planned, and in April 2018 decided to suspend all non-essential spending on the project.
Given the significant benefits that the project's completion would offer to all Canadians, and to secure its timely completion, the Government of Canada agreed to purchase Kinder Morgan Inc.'s Trans Mountain Expansion Project and related pipeline and terminal assets. The project will be built in a timely and commercially viable manner.
The Government of Canada is confident that, with this agreement, it is upholding the trust Canadians have placed in the Government to both grow the economy and protect the environment. This project is made possible because of Canada's world-leading Oceans Protection Plan, extensive and ongoing consultations with Indigenous communities, strengthened environmental standards, and a rigorous approvals process.
Guarantee of 2018 Construction Season
To ensure the project continues to move forward, the Government of Canada has agreed to provide funding for the 2018 construction season through loan guarantees.
It is expected that the funding will support a variety of activities required to construct the project, including the work to acquire needed permits, finalize aspects of design, complete construction contracts, and clear land as needed.
Canada would provide the new project proponent with an offer to support the Trans Mountain Expansion Project (the Expansion), whereby Canada would:
- Indemnify the proponent for additional costs caused by the discriminatory and unjustified actions of a province or municipality in an attempt to delay or obstruct the Expansion.
- Indemnify the proponent for future costs and a reasonable return if the proponent abandons the Expansion in the future because of either:
- a final adverse judicial decision is made in respect of the federal jurisdiction over the Expansion that would have a catastrophic impact on the Expansion; or
- despite commercially reasonable efforts, the proponent cannot complete the Expansion by a predetermined date.
- If either of these two events occur, Canada has the option to re-purchase the Expansion and the existing pipelines prior to the proponent abandoning the Expansion.
In addition to the financial support, Canada would provide full cooperation and support to the new proponent, including taking steps to deal with unreasonable provincial and municipal permit delays.
The indemnity would be conditional on the proponent committing to use commercially reasonable efforts to complete the project by a predetermined date.