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.”
Sanzillo also addressed the optics of a company with a growing portfolio of successful renewable energy investments suddenly taking a U-turn back into the fossil fuel era.
“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.”
The ignorance seen in this article I understand as it attached to 20th-century formal training and with it reminds me of the day i entered the workforce at 18 and few all during my education I was told if what to be anyone you have to have money or be in a place of influence.. Never graduated college, but I spent a career being the one that hears the same words We do not understand what you do or how you do it but would you go see if you can address the problem. We have a limited or no budget, the reason, the formally trained had blown it and had failed and was now walking away saying their was no solution but willing to try if they had more money and I had no authority to do anything. it always came down to the same problem. 20th-century Silo thinking that money and self-interest was the only thing of value and they both lack the ability to apply innovation and collaboration to create a solution that was in everyone’s best interest. but more important in the best interest of the community and I got to open the world to sustainable change. By understanding economic and business 101 principles. At some time someone has to reinvest the disposable cash into projects that can make a difference but going to take a long time to recover the investment but the benefits out way the negatives due to the domino effect in the communities.
Know if you want a really stupid investment is the new open mine in Alberta, Several Albertian have said if the Liberal do not improve it due to environmental lobbying Alberta should leave and gone the U.S. . Every province should have freedom of choice. Atlanta was an example they should have freedom of choice in fishing. Interesting to note in the U.S there was a community that went from boom to bust, millions invested; tourists wanted to go for a holiday for a long time. The state over was doig big business supplying everything they needed to feed hundreds of thousands, the business community was booming. Why did it go bust. The state over did not have any environmental laws but like the new revenue . Soon the river flowing several hundred miles away but into the lake, the community was on turn toxic and 50 yrs after its a dead zone for miles. Then we have the Atlantic example. Freedom of choice and how the fish struggling to recover even with all the rules in place. ignorance attached to investment just starting to realize screw the environment up bad enough and money going to have next to no value. The only question worth asking are you ignorant or is money and self-interest the only thing of value.
Right after the news came out about TM construction costs zooming to $12 billion, Finance Minister Morneau insisted that the government would sell TM back to investors at the right time but I think many questioned who would that be.
How about First Nations?
https://business.financialpost.com/pmn/business-pmn/morneau-outlines-plans-for-investment-talks-on-trans-mountain
Who knew that as well as pipelines being built to pay for the transition to renewables that they were also part of a reconciliation strategy too. Those shrewd, well positioned financially FN investors.
BTW, The PM is increasingly looking like a deer in the headlights. Everything seems to be coming up lose-lose as concern about climate increases. Maybe the strategy of balancing the economy and the environment in a petrostate wasn’t a particularily good political strategy considering Hothouse Earth.
https://www.straight.com/news/1164161/justin-trudeaus-grand-bargain-big-oil-exposed-donald-gutsteins-big-stall
I’m sure Jason Kenney would go all-in on a pipiline! He could use all the O&G royalties in the AB Heritage fund… Oh, wait….