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Trans Mountain pipeline: Did Canada buy a $4.5 billion lemon?

FILE – This May 29, 2018, file photo, shows Kinder Morgan’s Trans Mountain marine terminal in Burnaby, British Columbia. Canada’s Federal Court of Appeal on Thursday, Aug. 30, quashed the approval of the contentious Trans Mountain pipeline expansion that would nearly triple the flow of oil from the Alberta oil sands to the Pacific Coast (Jonathan Hayward/The Canadian Press via AP, File)

The Federal Court of Appeal’s decision to halt expansion of the Trans Mountain pipeline threatens to erode the value of an asset Ottawa plans to sell, upping the risk for taxpayer funds set to be invested in the controversial project.

Kinder Morgan Canada Ltd. (KML.TO) shareholders overwhelmingly endorsed offloading the 300,000-barrel-a-day pipeline, and the $7.4 billion expansion project, onto the federal government on Thursday, following the court’s decision. Ottawa announced its intention to buy the project for $4.5 billion in May.

Finance Minister Bill Morneau has said the government does not intend to own the pipeline long-term, noting that talks are underway with interested investors.

Petroleum industry analyst Dan McTeague sees the latest in a long line of setbacks to the pipeline’s expansion as a “very chilling message.” He said it’s becoming increasingly clear that Canada is not a friendly place for those who want to invest in energy.

“Canada is bending over backwards to every complaint,” McTeague told Yahoo Canada Finance. “You have people that have very little experience or knowledge of the economy, very little knowledge of the industry, choosing to side with orcas and meaningful consultation.”

The federal court’s decision cites inadequate consultation with First Nations impacted by the project, as the failure of the National Energy Board to consider increased tanker traffic off the coast of British Columbia.

Aaron Wudrick, federal director at the Canadian Taxpayers Federation, said Trans Mountain is “much less valuable” in light of Thursday’s court decision. He said the ruling is bad news for the project’s incoming shareholders, a.k.a. Canadian taxpayers.

“I think the government got taken for a ride here, frankly. Kinder Morgan managed to get out. Their shareholders are made whole. It’s now taxpayers that are bearing the risk that up until a couple of months ago Kinder Morgan shareholders were getting,” Wudrick said.

Ottawa approved the Trans Mountain expansion in 2016. Prime Minister Justin Trudeau has long-insisted it’s in Canada’s national interest.

Environmental groups, Indigenous communities, and the British Columbia government have mounted a fierce opposition.

The federal government has jurisdiction over interprovincial projects like pipelines, but B.C. Premier John Horgan has asked a court to determine his province’s right to control oil flowing through the province.

“That confusion exists nowhere else in the world,” McTeague said. “You mix that in with (government) language like ‘social license’ and trying to appease people that are never going to be happy. It doesn’t bode will.”

Foreign direct investment totaled $8.9 billion in the second quarter, according to Statistics Canada. That figure was held back by a $1.1 billion net divestment from energy. The sector lost net $8.6 billion in foreign direct investment over the last five quarters

McTeague expects that finding a suitor to buy the Trans Mountain pipeline, in Canada or abroad, will be tough for Ottawa as investors flock to more accommodating jurisdictions.

“Who is going to buy it?,” he asked. “How do you tell those who invest that they are going to be able to get some kind of return if you can’t perform? We have all this talk of shovels in the ground, but unless you’ve got steel in the ground, the project is frankly worthless at this juncture.”

Wudrick adds that he believes the government erred by appearing desperate to salvage the project, and by signalling desire to sell an asset it didn’t want in the first place.

“Anyone trying to sell a house while letting people know they are desperate knows that they are not going to get as good a price as if they held their cards a little closer to their vest,” he said. “The government has a lot of egg on its face here.”

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