“Justin Trudeau Faces Challenges in Selling Trans Mountain Pipeline, Disappointing Indigenous Groups”

Government-led asset sale encounters obstacles

Prime Minister Justin Trudeau has pledged to divest the Trans Mountain pipeline, one of the largest government-led asset sales in Canadian history. However, the government is facing numerous challenges in unloading the pipeline, including high interest rates, cost disputes with oil companies, and an upcoming election.

Trudeau’s plan is to generate wealth for Canada’s Indigenous people through the pipeline. The government intends to gift a stake in the project to over 100 Indigenous groups. However, the process has encountered political obstacles and has stalled in recent months.

Chief Tony Alexis, head of the Alexis Nakota Sioux Nation, expressed disappointment with the lack of progress. He stated that every day without a deal in place, Indigenous groups are losing money. The government’s intention is to auction the rest of Trans Mountain to potential buyers once it is fully operational. These buyers may include other pipeline operators, private equity firms, and infrastructure funds, with the possibility of Indigenous groups becoming commercial partners.

The sale of Trans Mountain is being closely watched by investment bankers, corporate lawyers, government officials, and the energy industry. The pipeline has been estimated to be worth up to C$28 billion ($20.9 billion), although some analysts have provided lower valuations.

Trudeau’s decision to buy Trans Mountain from Kinder Morgan Inc. in 2018 was a controversial move. Environmentalists criticize him for expanding the pipeline’s capacity to reduce Canada’s reliance on the US for oil exports. The lack of export options has caused Canadian heavy crude to trade at a significant discount compared to US benchmark West Texas Intermediate.

The Trans Mountain expansion project is over budget, costing more than C$30 billion. However, it is almost complete and scheduled to begin pumping oil within months. Trudeau aims to sell the pipeline before the next election to fulfill his promise to the western Canadian energy sector and Indigenous groups.

The government is planning to clarify Indigenous participation in the project to boost investor confidence. Over 120 Indigenous groups may be impacted by the pipeline project, and discussions have been held to determine their involvement. However, disagreements among the invited groups have hindered progress.

The government also needs to assess market conditions to determine the sale price of Trans Mountain. It has already invested about C$35 billion ($26.2 billion) in the pipeline, including the initial purchase and construction costs. Analysts predict that the government will likely incur a significant loss on the sale price.

Potential buyers for Trans Mountain include Alberta’s provincial pension fund and Brookfield Corp. However, most observers believe that a sale is unlikely before the end of 2024 due to slow consultations with Indigenous groups, legal disputes over tolls, and potential delays in oil filling the pipeline.

Trudeau’s ambitions for the pipeline sale may face further setbacks as the election cycle approaches. His Liberal Party is currently trailing the Conservative Party in polls, increasing the pressure for progress in divesting Trans Mountain.

–With assistance from Laura Dhillon Kane, Layan Odeh, and Paula Sambo.

©2024 Bloomberg L.P.

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