It would be a serious error for Toronto-based Brookfield Infrastructure Partners to invest in the Trudeau government’s troubled Trans Mountain pipeline expansion, a leading energy and finance analyst warned yesterday, after a news report identified Brookfield as a potential “dark horse” buyer for the project.
Brookfield, which has been building a profile as a green infrastructure investor, would run “significant risks” if it acquired the pipeline, U.S. investment banker Tom Sanzillo, finance director at the Institute for Energy Economics and Financial Analysis (IEEFA), told The Energy Mix in an email. “At the current levels of government exposure, this transaction would not be viable for a private equity investment.”
Sanzillo was reacting to a Bloomberg news report that identified Brookfield as “one unexpected suitor” for the pipeline, just days after Ottawa admitted the project had gone over budget by 70%—or 133%, compared to the first estimated released by its original proponent, Kinder Morgan, in 2014. The price tag now stands at C$12.6 billion, not including the $4.5 billion the federal cabinet shelled out to buy the pipeline on taxpayers’ behalf.
Bloomberg cited a report Monday by Ian Gillies, an analyst at Stifel FirstEnergy, that pointed to Brookfield’s “excellent access to capital markets” and proven ability to manage energy infrastructure assets as factors that would put it in the running to buy TMX, along with pipeliners TC Energy, Enbridge, and Pembina Pipeline Corporation, and several Indigenous consortia.
Brookfield spokesperson Claire Holland said the company doesn’t comment on speculation.
To make any deal at all plausible, “Brookfield would need the government to sell the pipeline and all for an amount substantially below Canada’s outlay, which will probably reach $20 billion (purchase price plus construction plus interest and carrying losses),” wrote Sanzillo, a former deputy comptroller for the State of New York. Even that kind of financial concession would merely “move the investment needle from an outright reckless investment to a very speculative one for Brookfield, and at a considerable financial loss for Canadian taxpayers.”
And even if Ottawa decided to write off its losses in (what it defines as) the public interest, “it remains to be seen if Brookfield or anyone could make a go of this project,” he told The Mix. “Global oil markets are weak, and the Canadian oil sands are a weak link in this equation.”
“Brookfield has earned a reputation in the field of renewable infrastructure investments,” he wrote. “It is clear that this energy transition requires us to have double vision and understand that both a fossil fuel economy and ‘green’ economy exist today. But why this fossil fuel deal now? The financial risk of failure is high, and the reputational downside for the company is certain.”