Energy Litigation


Radically redefining roles: proposed Indigenous ownership of the Trans Mountain pipeline

Energy Newsletter - November 2019
By Robyn Finley

In May, 2018, the Government of Canada announced that it had reached a deal with Kinder Morgan Canada Limited (Kinder Morgan) to buy the Trans Mountain pipeline and its related assets for $4.5 billion. Finance Minister Morneau made the announcement just two days before the deadline on an ultimatum that Kinder Morgan delivered to the federal government: give the company a clear path forward for the Trans Mountain Pipeline Expansion Project (TMX), or Kinder Morgan would walk away from construction.

Given the circumstances and the pipeline's hefty price tag, Prime Minister Trudeau was caught between the Rockies and a hard place. The Government of Canada had bought itself more time to address stakeholders' opposition to the TMX and begin construction, but the purchase came with a qualification that Minister Morneau made clear: the federal government does not intend to own the Trans Mountain pipeline indefinitely.

The federal government's acquisition of the pipeline and its undertaking to complete the TMX through Trans Mountain Crown Corporation (TMC), shows a recognition of the opportunity that the TMX represents. In a global economy with a growing demand for oil, TMX will play a part in Canada's rise to the challenge of delivering oil extracted with stringent regulatory oversight and environmental protection to meet the world's energy needs. Furthermore, the TMX is expected to generate $46 billion in government revenues over the project's construction and in the first 20 years of operation.

Judicial intervention in the consultation process is causing delays in construction and for Indigenous acquisition of the TMX

In light of the significant opportunity the TMX creates, the government's interest in selling the Trans Mountain pipeline spurred certain Indigenous groups to develop bids to invest in the TMX. On March 25, 2019, Minister Morneau reaffirmed that the government wants to move the Trans Mountain pipeline back into the private sector and confirmed that the government was consulting with Indigenous groups about their potential participation in the TMX.

Minister Morneau said consultations with Indigenous groups relating to the sale of the Trans Mountain pipeline and the TMX are being guided by four main principles:

  1. the potentially impacted Indigenous communities would have an opportunity for meaningful economic participation in the project;
  2. Indigenous groups' participation could help the economic development of their communities, in keeping with the spirit of reconciliation;
  3. the government invested in TMC to benefit all Canadians; and
  4. the project would be built and operated on a commercial basis.

However, no timeline for another sale of the pipeline has been announced. Minister Morneau emphasised that the federal government's role in realizing the TMX is to "de-risk" the project, and that it is committed to seeing re-consultation with stakeholders through its ownership of the Trans Mountain pipeline.

The Crown, in right of federal, provincial, and territorial governments has a duty to consult and accommodate Indigenous people where the Crown proposes action that may adversely affect Indigenous rights or title. The Crown's failure to fulfill its duty to consult has been at the heart of Courts' quashing Enbridge's Northern Gateway Pipeline in June 2016 and the TMX in August 2019. While cabinet re-approved the TMX in June 2019, in September, the Federal Court of Appeal granted leave to appeal to six Indigenous groups who appealed cabinet's approval of the TMX on the grounds of insufficient consultation. Notably, the federal government elected not to make submissions on its consultation efforts. While construction on the TMX was slated to begin in September 2019, judicial delays and the 43rd federal election have left stacks of pipe sitting inoperative along the TMX's route.

Indigenous participation in energy projects is moving from a beneficial interest towards ownership

There are 120 Indigenous in communities in Alberta and BC along the Trans Mountain pipeline's corridor, each with diverse sets of opportunities and risks, economic realities, political approaches and territorial stakes. In light of the duty to consult and the recognition of the importance of creating opportunities for Indigenous people to share in the economic success of energy projects, energy industry participants frequently enter into impact benefit agreements (IBAs) with Indigenous communities affected by the industry's work.

Indeed, TMC and Kinder Morgan consulted with 30,000 points of contact with respect to the TMX, and in 2018 had entered into approximately one hundred agreements with Indigenous groups. But the opportunity for profit and the proximity of the Trans Mountain pipeline to Indigenous groups' traditional territories have led certain groups to demand more than a beneficial interest set out in an IBA—they want ownership and control of the Trans Mountain pipeline, including the TMX. For interested Indigenous groups, conferring ownership of the Trans Mountain pipeline is a more meaningful act of reconciliation than the studies, programming, and capital transfers often contemplated in IBAs. Stephen Buffalo, president and CEO of the Indian Resource Council, solicitously articulated this position in commentary published by the Financial Post:

"There are no shortcuts around the duty to consult and accommodate. We have the right to be heard. We have the right to be part of the solution to the challenges facing Canadian resource developers. This works. Our communities are partners with hundreds of oil, gas and transmission companies across the country. Our resource-active communities are gaining autonomy from government and are showing that we will be an active and progressive part of this country’s economic future."

D'Arcy Levesque and his colleagues at Project Reconciliation see Indigenous ownership of the Trans Mountain pipeline under the model that his group proposes as a way to create generational wealth for Canada's Indigenous peoples and to break harmful social and economic cycles.

Interested Indigenous investors

Indigenous groups who are interested in investing in the TMX include:

Project Reconciliation

Project Reconciliation (also called Reconciliation Pipeline) is an initiative started by Indigenous communities in BC, Alberta and Saskatchewan to buy a 51 percent majority equity stake in the TMX.

Project Reconciliation proposes structuring Indigenous ownership of the Trans Mountain pipeline by offering three types of investment units to all Indigenous and Métis communities in BC, Alberta and Saskatchewan. The structure and funding model remains subject to government and stakeholder input, but Project Reconciliation has proposed Class A Units (45 percent of the available interest) would be available to communities in the right-of-way of the Trans Mountain pipeline. Class B Units (35 percent of the available interest) would be offered to non-right-of-way communities and Class C Units (20 percent of the available interest) would be available to distant communities. Project Reconciliation plans that $50 million in revenues would be distributed among the First Nations who sign up to be a part of the pipeline. The remaining $199 million — or about 80 percent of the annual cash flow — would go into a Sovereign Wealth Reconciliation Fund to be re-invested into green, low-carbon infrastructure projects for the benefit of all Indigenous communities in Western Canada.

As of June 20, 2019, Project Reconciliation reported that they had a conditional agreement with a Division I Bank under a funding structure that involves a 51 percent equity stake purchased through capital markets. Project Reconciliation promises "no up-front capital costs for participating Indigenous communities and no added costs to Canadian taxpayers". The financing of the purchase and completion of the TMX will cost $7.6 billion and will be financed through a 20-year senior secured non-recourse bond. The proposal includes three steps:

Step one: purchase a 51 percent interest in the existing pipeline from the federal government for approximately $2.3 billion.

Step two: fund 51 percent of the expansion project for approximately $4.6 billion. This is to be funded on a construction loan basis by a banking syndicate, with the federal government proposed to guarantee the loan and to take responsibility for any cost overruns. Construction is proposed to be carried out by TMC, with Indigenous contractors engaged where possible.

Step three: ultimately reacquire the remaining 49 percent of the Trans Mountain pipeline from the federal government.

At the end of July 2019, Project Reconciliation submitted a preliminary proposal to the federal government to buy the Trans Mountain pipeline. The government confirmed that the proposal was received, but noted that "the government is not yet accepting formal bids". Project Reconciliation is open to counter-proposals tendered by the Federal Government, with meaningful Indigenous input on safety and environmental compliance as its bottom line. Furthermore, Project Reconciliation continues to gather feedback from Indigenous communities in Western Canada to be reflected in its final submission to the federal government.

The Indian Resource Council (IRC)

The IRC was founded in 1987 by oil and gas producing First Nations' chiefs with a mandate to advocate for autonomous resource management, involvement, and benefits for First Nations located within the Western Canadian Sedimentary Basin.

The IRC envisions a 100 percent Indigenous-owned and-operated pipeline project, and has held meetings with representatives of over 100 First Nations who are considering the joint investment. The IRC has also consulted with the federal government and led preliminary meetings with First Nations about making a bid for the pipeline.

Chief Roy Fox, an IRC board member, cautioned the IRC in January 2019 against investing in the Trans Mountain pipeline, given that opposition and regulatory hurdles to the TMX still abound.

The Western Indigenous Pipeline Group

The Western Indigenous Pipeline Group is a coalition of First Nations located along the Trans Mountain pipeline's route in BC. The Group wants a 51 percent stake in the Trans Mountain pipeline.

Mike Lebourdais, the chief of the Whispering Pines/Clinton band in BC, reported on October 5, 2019 that TD Securities has agreed to lend the Group the funds to buy the pipeline, and that the Group has enlisted an undisclosed company to operate the pipeline.

The Iron Coalition

Launched on June 5, 2019, the Iron Coalition is an Alberta-based coalition of First Nations and Métis communities. Member communities need not be situated along the Trans Mountain pipeline route. The Iron Coalition has been endorsed by the Assembly of Treaty Chiefs.

Members are asking for a $1,000 commitment to demonstrate exclusivity to the Coalition. Initially, "All Iron Coalition members will receive an equal ownership interest in the TMX pipeline with no up-front capital. From there, all member communities will have the option to secure additional ownership in the pipeline dependent on the financial capability of each community based in strictly commercial terms." The Iron Coalition plans to direct all profits back to each member community based on ownership share and community population.

Coalition executives Tony Alexis and Paul Poscente penned an article in the Globe and Mail in July 2019, and explained that the Iron Coalition has undertaken preliminary financial modelling and analysis based on publicly available data from the Kinder Morgan acquisition and have been meeting with multiple financial institutions, as well as several departments within the Alberta government. However, the Coalition does not feel the time is right to formally table a bid, saying that "There is too much at stake to seek headlines over substance. This is a historic opportunity on an investable project, but it must be done right".

New Alberta Legislation could give rise to additional movements

The Alberta government has introduced legislation to set up a new Crown corporation to help Indigenous groups invest in major natural resource projects. Bill 14, the Alberta Indigenous Opportunities Corporation Act, creates the Alberta Indigenous Opportunities Corporation (AIOC) – a first-of-its-kind in Canada. Bill 14 is aimed to "aid First Nations in building financial capacity, provide loan guarantees and financial expertise to help First Nations negotiate on projects. The AIOC would also provide support for alternative energy and other types of economic development."

Premier Jason Kenney said that partnering with Alberta First Nations in resource development is an “economic and moral imperative,” and he hopes that interested Indigenous investors in the TMX can come together and form one consortium.

TMX controversy cuts deeper than the Great Divide

Notwithstanding the federal government's articulated willingness to negotiate a sale of the Trans Mountain pipeline to an Indigenous owner or owners, the prospect of "de-risking" the TMX before construction begins is a daunting task.

Nearly seven years since the application for the TMX was first filed in 2013, over three years since the (then) National Energy Board issued the first Certificate of Public Convenience and Necessity in 2016, and after litigation in Alberta, British Columbia and Federal Courts, construction of the TMX is not yet underway. With a federal government re-elected that pledges to move forward with the TMX, and no new legislation necessary to begin construction, D'Arcy Levesque emphasized that "the majority of Indigenous people in Western Canada support responsible energy development, and we look forward to moving ahead with construction of the TMX with the confidence that Canada's Indigenous communities were adequately consulted".

Nonetheless, the project is contentious and highly divisive among provinces, the general Canadian population and still more so between Indigenous communities. Indigenous peoples' histories, traditional territories and experiences with extractive industries are distinct and diverse. As such, Indigenous peoples' objectives with respect to the Trans Mountain pipeline and the TMX are not homogenous. Some Indigenous groups support the TMX, like the Whispering Pines/Clinton band (who have also signed an IBA with TMC) and the Athabasca Chipewyan First Nation (who were previously outspoken against oilsands development, and invited Leonardo DiCaprio to tour Fort McMurray). Others, including the Squamish Nation and Tsleil-Waututh Nation are vehemently opposed. Grand Chief Stewart Phillip, president of the Union of BC Indian Chiefs maintains that Indigenous ownership of the TMX would not shift the position of BC Indigenous groups opposed to the TMX. University of British Columbia sociology professor David Tindall posits that Indigenous ownership of pipeline projects may garner more support with Indigenous communities along the Trans Mountain pipeline's right of way:

"First Nations ownership would undercut the environmental movement, because many of the people who oppose the pipeline are likely to support self-determination for First Nations, […] that’s going to be a big dilemma for the environmental movement and from a public opinion point of view, I think people could question continuing to fight the pipeline in that context."

To further drive a wedge between competing interests, Indigenous opposition to the TMX is often aligned with settler-led environmental opposition in the media. Chief Ernie Crey of the Cheam First Nation in BC's Lower Mainland cautions other Indigenous groups from subscribing to the positions tendered by such environmental activists: “My advice to First Nations is be watchful of environmental groups who want to [advance] their agendas under an Indigenous flag,” Mr. Crey said in an April 2018 Twitter post. “Trust me, their goals & aspirations are far different than ours.” Chief Crey may be referring to the environmental lobby's ties to American funding that has been traced back to groups and individuals who have an interest in preventing Canada from diversifying its energy export market—forcing Canada to sell its resources to our only land-accessible neighbour at a deep discount.

Given the strongly held positions in the debate over the TMX, the prospect of "de-risking" to a point where an interest or interests in the Trans Mountain pipeline could be sold to Indigenous Groups is formidable.

The only certainty for the TMX is uncertainty

Corporate pipeline owners and operators like Kinder Morgan are expected to act in the interests of the company and its shareholders; the federal government is expected to act in the national interest. Multi-party ownership of an interprovincial undertaking by Indigenous groups do not have such clear-cut expectations. Canada's current turbulent political climate further muddies the way forward. Indigenous ownership of the Trans Mountain pipeline is an historic opportunity to answer the calls to action of the Truth and Reconciliation Commission, but notwithstanding its articulated interest in selling Trans Mountain to an Indigenous buyer or buyers, we have few details on the terms of a sale that the government would accept. The federal government needs to be sold on an investment proposal before a sale of interests in the Trans Mountain pipeline can close.

Among the myriad issues on which prospective Indigenous purchasers will have to satisfy the government, the government will likely require submissions outlining prospective purchasers' plans for:

  • joint ownership of the Trans Mountain pipeline and the distribution of risk and responsibility;
  • sources of funding and the certainty of its availability in a number of scenarios, including delays in construction;
  • operatorship of the Trans Mountain pipeline;
  • securing contractors to undertake construction of the TMX;
  • ongoing opposition to the TMX and community engagement;
  • if and how the federal government will retain jurisdiction over particular aspects of the TMX;
  • any new or continuing matters requiring consultation with other Indigenous groups;
  • how to allocate revenues to benefit their Indigenous constituents, as well as Alberta, BC and the rest of Canada; and
  • how the costs and obligations related to any ongoing or new disputes related to the Trans Mountain pipeline and/or the TMX will be allocated.

BD&P reached out to Project Reconciliation, the Indian Resource Council, the Western Indigenous Pipeline Group, and the Iron Coalition and seeking input on the content of this article and the positions represented herein. We spoke with D'Arcy Levesque from Project Reconciliation and we appreciate his time and input. We will update this article as we hear from others and as new developments occur.

References can be found in the attached PDF.