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Dangers of Trans Mountain Nationalization

While the Canadian government’s plan to buy the Kinder Morgan pipeline came as a surprise to some, Alan Freeman says bailing out private companies “is as Canadian as canola and maple syrup.”

This week, finance minister Bill Morneau announced that the federal government would buy the Kinder Morgan pipeline — and related infrastructure — in a $4.5 billion deal.

Freeman, an iPolitics columnist and University of Ottawa senior fellow, said it’s certainly not the first time a government has done something like this.

He told Day 6 host Brent Bambury that history indicates that government bailouts can be successful. However, it remains to be seen whether Trans Mountain will follow the same trajectory.

Freeman said Canadian government’s decision to purchase a stake in the Hibernia oil project more than two decades ago, and later to bail out the automotive industry in 2009, are two examples of deals that ultimately paid off. However, neither held any guarantees for a return on investment at the time.

By comparison, Freeman said this week’s Trans Mountain deal seems less financially risky.

“They’re buying an existing pipeline. There’s oil going through there today. So, that is an existing business which right off the bat will [provide] revenue,” he said.

But he cautioned that the deal comes with a heightened level of political risk.

While Morneau has insisted that the pipeline’s expansion will continue now that it is a Crown corporation, the deal hasn’t quieted the projects vocal oppositions.

“The big risk with Trans Mountain is can they get it built,” Freeman said. “That’s the risk that Kinder Morgan didn’t want to take.”

Both the Hibernia and the GM-Chrysler bailouts were mentioned by analysts and politicians alike this week in relation to the Trans Mountain pipeline deal.

When the federal government bought an 8.5 per cent share of the Hibernia oil project in 1993, the project — and province — was in turmoil. The price of oil had collapsed, leading a major investor to pull out. The year before, the cod fishery had closed.

“Newfoundland was in terrible shape,” Freeman said.

The Mulroney government’s decision to invest in Hibernia carried no guarantee of a return on investment. It was a sort of “doubling down,” according to Freeman, as the government had already committed billions to the project in grants and loan guarantees.

Not everyone was convinced it was the right move.

“There was an analyst, an oil analyst, [who said] ‘I’ve never seen a [less] economic project in my life. This is going to be basically a disaster,'” Freeman said.

But the investment proved lucrative.

“By the end of 2016 they had already pulled out a billion barrels of oil. So twice as much as they thought were there originally,” he said.

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