Canada's government got just 24hours notice that it would be thrust into a political andeconomic crisis by an ultimatum from a pipeline operator,government sources said, leaving Prime Minister Justin Trudeauscrambling for options in a dispute that could damage hisre-election chances.
The Kinder Morgan Canada pipeline issue has pittedOttawa against the Pacific province of British Columbia andcould turn into a constitutional crisis, derail Trudeau's energystrategy and dent business confidence. Trudeau broke off a foreign trip to hold an emergencymeeting on Sunday with the premiers of two provinces locked in astandoff over the pipeline after the company set a May 31deadline to resolve the impasse or it would walk away. Federal officials had been talking to the company sinceFebruary when British Columbia's left-leaning coalition, whichincludes the Green party, made clear it would delay the plannedexpansion of the Trans Mountain pipeline from Alberta's oilsands to the coast. But the government had no idea that Kinder Morgan Canada wasabout to drop a bombshell. "Kinder Morgan's announcement on Sunday was unexpected,"said a senior government official who declined to be identifiedgiven the sensitivity of the situation. "We had 24 hours'notice." The move by Kinder Morgan Canada, which was spun off by itsU.S. parent last year, puts pressure on Trudeau to solve theproblem without alienating voters in British Columbia orpresiding over an investment failure ahead of 2019 elections. A second federal government source said the prime ministerand senior cabinet members had worked behind the scenes forweeks, pressing British Columbia to change its position. "If we're talking of things going awry, British Columbiaknew this was federal jurisdiction," said the source. The operator wants to almost triple the capacity of theexisting pipeline. Ottawa, which approved the project in 2016,insists it has jurisdiction. British Columbia's government,elected in 2017, disagrees, citing the risk of a spill. "I do believe we have a mandate to defend the coast,"provincial Premier John Horgan told reporters on Friday. Trudeau won power in 2015 partly thanks to extra seats hisLiberals won in British Columbia as well as increased supportfrom environmentalists. Cracking down too hard would cost himsupport in both camps, leaving him with a weak minoritygovernment in the October 2019 elections. Long-standing tensions over the pipeline meant Liberals inBritish Columbia were already nervous about softening supportbefore Kinder Morgan Canada's ultimatum, said a Liberal partyofficial. The Liberals also have to pick up seats in the province ofQuebec, which has a strong green tradition. "It wouldn't really take a lot to tip the government intominority territory," said pollster Nik Nanos of Nanos Research. "If you're looking at hard political calculus, the primeminister realistically has to tilt in favor of the environmentbecause if he doesn't that will kill him in Quebec." During Sunday's meeting, Trudeau will lay out the variousfinancial, regulatory and legal options, said the secondgovernment source. "It's not a matter of getting angry, or being mean or niceabout it – he will lay out the facts," said the source, whospoke on condition of anonymity. The federal and Alberta governments both say they could takea stake in the pipeline to keep the project alive, withAlberta's premier saying her province could even buy itoutright. Kinder Morgan Canada has said it was open todiscussions but did not elaborate. The first government source there was a "huge gray zone" ofpossible government help, citing the past bailout of the autoindustry in 2009, federal loan guarantees for a hydro-electricproject and Ottawa's investment in an offshore energy project. Toronto-Dominion Bank Deputy Chairman Frank McKenna,a member of Alberta's pipeline advisory taskforce, said heraised the issue with Trudeau in a recent call and that Ottawahas to "provide deal certainty … a backstop". "That could be something in the nature of an indemnityagreement or a guarantee against potential losses that wouldcome from political instability and not based on normalconstruction risk," said McKenna, a former premier of NewBrunswick. TD Bank is Kinder Morgan Canada's biggest lender. "At the end of the day this pipeline can't be allowed tofail, it would be a huge blow to the leadership of the countryand to the image of the country." (With additional reporting by Matt Scuffham in Toronto, JulieGordon in Vancouver;)