A Crown corporation that provides support for Canadian exports is trying to figure out what to do next after the government announced the agency would help taxpayers buy a controversial oil pipeline system on the west coast that is slated to expand.
The Government of Canada reached out to Export Development Canada (EDC), the agency confirmed Thursday, for the loan guarantee that the Finance Department has said EDC will be providing in connection with the $4.5 billion purchase of Kinder Morgan's Trans Mountain oil pipeline and expansion project.
“The Government of Canada has asked EDC to help facilitate its purchase of the Trans Mountain Expansion Project,” said Shelley Maclean, principal advisor for external communications at the agency, in an email.
“EDC is currently engaged with the government to determine the nature of EDC’s involvement in this transaction.”
Trudeau instructed Morneau to negotiate secretly in Houston, New York, and Canada
The federal and Alberta governments, along with oil companies, say the project is critical for growth in the oilsands sector, home to the world's third largest reserves of crude oil. But opponents have warned that the oil pipeline and tanker expansion project would push Canada's climate change goals out of reach and threaten Canada's west coast.
Prime Minister Justin Trudeau's government struck its deal to buy the project in response to an April 8 ultimatum issued by the project's Texas operator, Kinder Morgan. The company had threatened to abandon the project by May 31 due to uncertainty caused by the opposition in B.C., specifically efforts by the provincial government to introduce regulatory obstacles designed to protect its water and coastline.
Trudeau then instructed Finance Minister Bill Morneau to secretly negotiate the deal in the boardrooms of Houston, New York, Texas and Calgary before they announced their plan on May 29 — a plan that was later backed by Alberta Premier Rachel Notley and praised by Kinder Morgan executives.
Finance Department declined to release copy of deal with Kinder Morgan
Maclean said she couldn’t provide the specific date when the government first reached out to EDC. She directed other questions about the commercial agreement with the Texas-based energy giant to Finance Minister Bill Morneau’s office.
Morneau's department told National Observer on Thursday that most details about its deal are shrouded in secrecy "until the end of August-September because of commercial confidentiality."
By that time, the department said the assets would be transferred to another Crown corporation, the Canada Development Investment Corporation, which reports to Parliament through Morneau.
The government has also declined to release a copy of the $4.5 billion deal.
EDC considers itself to operate at “arm's length” from the government. It reports to Parliament through the international trade minister, François-Philippe Champagne.
The agency provides insurance protecting exporters against losses from exporting, trade expertise, and loans and other financing to Canadian firms for business development and to foreign buyers looking to buy Canadian products.
On Tuesday — the day Morneau and Natural Resources Minister Jim Carr announced Canada would be buying the pipeline — Finance Canada published a backgrounder that stated EDC would be providing a loan guarantee in order to ensure construction on the pipeline can restart this summer.
A loan guarantee means one party agrees to pay the debt of another, if that party can’t pay it off themselves.
Kinder Morgan said in April that it in order to ramp up construction at that point it would have had to increase spending “significantly."
Chairman and chief executive officer Steve Kean said at the time that “full construction would reach $200-$300 million a month" and that this was "unsupportable unless we are confident that we can finish what we start."
The Finance Canada backgrounder said Canada had reached an agreement with Kinder Morgan to “immediately restart” construction by guaranteeing financing for the 2018 summer construction season, through the EDC loan guarantee.
Project makes good business sense, officials insist
Government officials insisted in a technical briefing for reporters, also held on Tuesday, that the project makes good business sense and will be profitable.
But some analysts, such as economist Robyn Allan, a former president of the Insurance Corporation of B.C., have suggested that Kinder Morgan's ultimatum was "grandstanding" prompted by its difficulties in securing financing to proceed with the project.
EDC says it conducts its business in an "environmentally and socially responsible manner" and reviews projects against its Environmental and Social Risk Management Policy that, among other things, describes "evaluating climate change risks at a project level."
At least one top official at the agency has a history of supporting the same reasoning behind building pipelines that the Trudeau government has offered: that Canada's oil is too dependent on the United States market.
In 2014, when the former Harper government was in power, EDC's vice-president and chief economist Peter Hall told the Financial Post in an article about the Northern Gateway pipeline, which the Trudeau government killed in November 2016 at the same time as it approved Trans Mountain, that the domestic market had suffered from that shortage of markets.
“The world is still thirsty for energy sources," Hall told the newspaper. “We’ve got the third largest reserves in the world, behind Venezuela and Saudi Arabia, and our rate of production is far lower than the relative rate of production of many other places with far less oil than ourselves."
EDC tweeted that article, titled "Northern Gateway pipeline approval first step to Canada becoming energy superpower," on June 18, 2014.