Pipelines are just a symptom

There was a somewhat frightening article published, just a few days ago, on the BNN/Bloomberg website headlined: “Canada ‘a laughing stock’: Experts react to Trans Mountain indemnity.” The “indemnity” is, of course, Finance Minister Bill Morneau’s promise “to indemnify the project for politically-motivated delays and backstop any company that takes it on.” That, alone, scares me because it suggests that the Justin Trudeau Liberals are flirting with a return to Pierre Trudeau’s distorted bastardized view of ‘fiscal federalism that said that since there was no “good case” for Canada it would have to suffice to offer Quebec bribes to stay … now, it seems, we’re going to bribe companies to stay and build in Canada despite a dysfunctional federal system that, arguably, needs a lot of constitutional ambiguity to survive intact.

But the really scary parts are in some quotes from some business/investment and policy heavyweights:

It’s a sign of Canadian political instability:

“Basically what’s coming out here, and [Morneau is] coming so close to saying it, is that they’re indemnifying for political instability. I’m not sure how many of us as Canadians really see us as living in an unstable political environment … This is about reputational risk. This is going to make other companies, other projects all pause and say, ‘What if?’”

“Before, that ‘What if?’ was dismissed because it’s Canada, it’s stable. Not so much anymore. I think we need strong political leadership here and, personally, I don’t think we’re getting it.”

Gordon Reid, president and CEO of Goodreid Investment Counsel

Kinder wants ‘protection from everything’: 

“The whole idea is to protect Kinder Morgan from damage and escalation of costs if the project should be held up once they start to build it again. [Morneau] said he would protect them from risks and costs escalations associated with the B.C. government’s actions … But he didn’t say he would also protect them from court cases filed by the First Nations, local protestors and municipal behaviours that could also really disrupt the pipeline. If I’m Kinder Morgan, I want protection from everything that could cause escalations in this project.”

Gwyn Morgan, former Encana CEO

Canada is ‘becoming a laughing stock’:

“We can’t live with this kind of uncertainty in Canada. We can’t build a major infrastructure project in Canada for what should be our prime asset. We are an energy producing country – we should recognize that fact and pull together as a nation and get it happening … It makes no sense whatsoever if the federal government cannot impose its will and legislate in every way to have an interprovincial pipeline built in the country. We simply have to get our act together on these matters because we’re becoming a laughing stock in the world.”

Derek Burney, senior strategic advisor for Norton Rose Fulbright and former ambassador to the U.S.

The indemnity is an ‘extremity’:

“Of course it’s a sad commentary about how our regulatory, judicial and political systems work – that such an indemnity has become necessary. Part of it has to do with the position that the B.C. government has taken, that they’re unwilling to defer to a federal determination of approval in the context of the federal government having jurisdiction. So it is very unfortunate that this extremity had to be considered but it’s indicative of the value this project represents to the country that the government – a Trudeau government that is a fundamentally centrist government – has been able to get their head around the provision of an indemnity.”

Dennis McConaghy, former TransCanada executive vice president of pipeline strategy

… and …

Investors may need to brace for the worst:

“From an investment standpoint, looking at the pipelines in general, this has been one of the biggest disappointments for quite a while now. So, you can take the positive angle and say this looks really good, now we’re probably going to get the pipeline going through and we have a little bit more security around it, a little bit more certainty, which is always what investors want at the end of the day.

“But, on the other hand this introduces a lot more conflict perhaps in the negotiations, what we’re about to see in the West Coast in terms of further opposition to the project. From an investment point of view that’s not good. At the end of the day, this may not achieve what the government wants or maybe what investors want.”

Andrew Pyle, senior wealth advisor and portfolio manager at The Pyle Group, Scotia Wealth Management

It appears to me that we may, from constitutional necessity, need to consider developing some sort of public-private partnership (PPP) regime for any sort of large scale infrastructure project … it may be impossible for the private sector, alone, to raise capital to build anything in Canada when a coalition of the green Children’s Crusaders and First Nations  can hold any project to ransom, using threats of violence when they have no legal or moral case to make, without fear of legal repercussions. Perhaps only the national government has the financial resources to face down the greenies and buy off the First Nations. Arguably we built the national rail lines and the Trans-Canada air services and microwave networks that way, maybe pipelines need similar treatment.

I’m not against PPP; I can cite some great examples ~ the Hong Kong MTR (Mass Transit Railway) is a good example of an excellent and profitable PPP. The MTR could not have been built (1968) without HUGE public investment but the Hong Kong government was smart enough to understand that bureaucrats are, generally, not as good at running enterprises as are entrepreneurs, so they sold it off (gave it away, some said) (2000) to private investors ~ 1 billion shares were sold and it is one of the best and most profitable transport systems on earth. The Trans-Canada microwave system was built, mainly, by the old Trans Canada Telephone System (an alliance of several publicly and privately owned operators) but it relied very heavily on government owned research and development, which was “given away” and on federal government political and policy support … it was one of the major telecom infrastructure projects of the 20th century, rivalling anything done in the USA, Europe, Russia or China. Ditto for Canada’s entry into the commercial space field: our first satellite, Alouette, was 100% government (the old Defence Research Telecommunications Establishment) but it soon gave birth to Telesat, a very successful private company. So, there’s nothing wrong with PPP … PPP works well when each of the public and private partners stays in heir lanes and does what each knows best. Governments are, by and large, inept and running enterprises; entrepreneurs are usually weak at policy and political issues.

I suspect that everyone quoted above is right about parts of the problem: I think, as Gwyn Morgan says, that Kinder-Morgan wants more and I also suspect that any new investor in any major Canadian infrastructure project will also want more. The government has demonstrated, as Derek Burney says, that “We can’t build a major infrastructure project in Canada.” By “we” he means Canadian corporations operating, lawfully, in Canada. I doubt that any new pipeline can be built; we could never hope to build anything analogous to the CPR under the existing political systems. We, as a nation, as a people, have decided that we should be tied in knots by special interests ~ some pursuing redress for legitimate grievances, some following along on a sort of mindless children’s crusade against reality.

Was there, ever, an alternative for Team Trudeau? Yes, but it involved facing down that obnoxious clown Denis Coderre, then the Liberal mayor of Montreal, on the Energy East issue. Coderre believed in Pierre Trudeau’s view of ‘fiscal federalism:’ he wanted a bribe ~ someone else’s money that he wouldn’t have to earn. But he could have been and should have been kicked out of the way, but that’s not the way Liberals treat other good Liberals, is it? So, Canada (Team Trudeau, anyway) surrendered to Montreal’s bullying and business and the greenies and others, including the BC NDP government, all got the message and the Trans-Canada pipeline expansion is, for now it seems, a dead duck.

But the pipeline is just a symptom of a deeper problem: Canada, Canadian corporations “can’t build a major infrastructure project in Canada,” because our constitutional and political systems are in disarray. The ambiguity in the constitution may have been intentional in 1867, it may have been necessary in 1982 to get an agreement on amending or the Charter of Rights. (By the way, I think ALL written constitutions are weak and inferior in every possible way to unwritten ones and I think our (1982) constitution is worse than most.) We have to accept that for what it is and it means that when the national government wants to assert it perceived authority it needs to go, first, to the Supreme Court to get a favourable opinion … my guess is that the Supremes will, generally, rule in the national interest when they are asked, but when they are forced, as BC is likely to do, they may well interpret the constitution fairly literally and then rule against the national interest (for provincial rights) when the black letter law allows such an option.

The constitutional problem is not Prime Minister Trudeau’s fault … we can thank blame is father for that. But the current political problem is a sign of a weak leader at the head of a disorganized, aimless government.


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