May 17, 2018 Read More →

Commentary: Trans Mountain Financial Problems Are Kinder Morgan’s Issue, Not Canada’s

National Observer:

In an unusual action for a Sunday afternoon, on April 8, 2018, Kinder Morgan Canada Limited (KML) issued a press release announcing it had taken the Trans Mountain pipeline expansion project hostage. The company said it was suspending “all non-essential activities and related spending” on the project.

The demands? Meet two conditions by May 31 or Trans Mountain’s expansion would die. The two conditions? Final clarity on its ability to construct the project through B.C. and adequate protection of KML shareholders.

Kinder Morgan’s fanfare announcement is a cover-up. Trans Mountain pipeline expansion lacked commercial viability from the get-go. It has required government supported handouts at every stage of development. Kinder Morgan has put very little shareholder capital at risk. It has always looked to others— the shippers, Canadian investors and Canadian taxpayers — to do so.

Upside potential with none of the downside risk is a sweet deal. The Texas-based company — forged from the executive ranks that ran Enron — wants to keep it that way.

Kinder Morgan’s shareholders have almost nothing at risk — somewhere around $200 million. Sure, project spend to date is $1.1 billion but Kinder Morgan has confirmed these costs are reduced by $210 – $220 million through the Firm 50 Fund granted to the company in an unprecedented [National Energy Board] approval in 2011. Further, the early termination clause 5.4(b)(i)(A) in Kinder Morgan’s contract with long-term take or pay shippers means oil companies pick up 80 per cent of costs. So, Kinder Morgan’s shareholders are exposed to only about 20 per cent of the $900 million — or roughly $200 million.

For Kinder Morgan to proceed it will likely want Ottawa to protect its shareholders from exposure beyond what they now have at stake. The “adequate protection of shareholders” Kinder Morgan seeks, when Kinder Morgan has almost no skin in the game, is a very expensive proposition for Canadian taxpayers on a go forward basis.

More: What’s Behind Kinder Morgan’s May 31 Ultimatum? Follow The Money

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