Industry NewsfeedCourtesy of Stikeman Elliott. View original post here.
Federal and provincial governments are required to consult with and accommodate Indigenous peoples whose rights may be affected by proposed energy projects. These requirements have led to the now standard practice of developers entering into benefit agreements with Indigenous communities for the supply of some of the work required to construct and operate these projects. These kinds of arrangements have created opportunities for Indigenous people to share in the economic benefits from these projects. They have also been instrumental in securing Indigenous peoples’ support for them.
But Canada’s Indigenous peoples are now more than ever looking not just for benefit agreements in relation to major energy projects, but also opportunities to own all or part of those undertakings and to participate in the decisions required in their development and management.
Ownership interests in long life energy infrastructure assets and the reliable financial returns that they can produce are seen by Indigenous peoples as a way to participate in the broader economy and generate own sourced revenues to provide improved socio-economic, healthcare and education outcomes for their communities.
And more importantly as a necessary part of the spirit of economic reconciliation contemplated by Call to Action No. 92 of the Truth and Reconciliation Commission.
Early Equity Positions
There have been numerous examples of Indigenous peoples’ equity participation in energy projects.
In some cases, ownership positions resulted from the strategic location of Indigenous peoples’ lands and natural resources:
- The Haisla Nation’s traditional territory being near Kitimat resulted in them partnering in several proposed LNG export projects on the West Coast including Kitimat LNG, LNG Canada, the Pacific Trails Pipeline and the Douglas Channel Energy Project. The Haisla’s option to acquire equity in Kitimat LNG was sold for $50M and the lease they granted of the site required by Kitimat LNG for its project will, if it proceeds, generate substantial annual revenues for the Haisla over the 40-year life of that project;
- The Keeyask Hydropower LP between the province of Manitoba (75%) and four Manitoba First Nations (25%) and related agreements provided options to those First Nations groups in respect of the construction, ownership and operation of the 695 MW Keeyask Dam project in Manitoba. These were the culmination of arrangements between the province and First Nations communities living in proximity to this power project that dated back to the 1970s; and
- Access to the Frog Lake First Nation’s lands in Alberta allowed Frog Lake Energy to joint venture with participants in the oil and gas industry to explore and develop those lands. Frog Lake Energy now produces over 3,000 barrels of oil per day.
In other cases, ownership of energy projects has evolved from the not insignificant amounts paid by project developers to Indigenous peoples through benefit agreements, adverse impact arrangements and other programs. These payments have spawned successful businesses in the energy sector for Indigenous groups and given them the financial capacity to acquire equity interests in energy assets such as the Fort McKay and Mikisew Cree First Nations’ purchase of an aggregate 49% interest in the East Tank Farm from Suncor in 2017 for $503M.
The Growing Trend
Recent events confirm that Indigenous peoples are increasingly active in pursuing opportunities for ownership of energy projects.
Various Indigenous groups have expressed interest in acquiring all or parts of the Trans Mountain Pipeline. The federal government has published four principles for Indigenous ownership in that regard and has held discussions with Indigenous groups to sell the pipeline to them when construction of the expansion project has been de-risked. After approving the expansion of Trans Mountain the government initiated an engagement process with a broad number of Indigenous groups regarding their interest in ownership of the pipeline.
Interested investors include:
- The Western Indigenous Pipeline Group, representing First Nations along Trans Mountain’s pipeline route in BC;
- Project Reconciliation, a proposed coalition of 200 First Nations and Métis communities in Western Canada who are looking to acquire a 51% share. Project Reconciliation plans to fund that acquisition by issuing debt backed by shipping contracts on the line;
- The Iron Coalition who want between 50% and 100% of Trans Mountain. The Iron Coalition says that it should be the preferred bidder as only First Nations and Métis communities in Alberta and BC that this pipeline runs through will be invited to join that group; and
- The Indian Resource Council (IRC) who are working on a proposal to Ottawa to acquire the project and make the pipeline 100% owned and operated by Indigenous peoples. IRC represents 134 First Nations that have either oil and gas resources on their lands or that would see their territories crossed by the Trans Mountain expansion.
In addition, TC Energy wants to sell up to 75% of the Coastal GasLink pipeline that will deliver natural gas to the LNG Canada project on the West Coast. Various First Nations along the right of way of Coastal GasLink are interested in acquiring ownership interests in the pipeline, including the First Nation Leadership Group, a coalition representing 20 elected First Nations Councils. It has offered to buy a 22.5% stake in the project.
Equity in these projects would give participating Indigenous groups a stake in their success and may yield more support for these projects among the Indigenous peoples affected by them and with other Indigenous peoples across the country.
Most recently:
- The federal government agreed to sell Ridley Terminals Inc. to Riverstone Holdings and AMCI Group (90%) and the Lax Kw’alaams Band and the Metlakatla First Nation (10%). Ridley Terminals operates a coal export terminal in northern British Columbia; and
- The Tahltan First Nation purchased a 5% interest in three run-of-river hydroelectric projects located in their traditional territories in BC for an aggregate price of $124M.
Other Proposed Projects
Indigenous groups are not only interested in buying into existing energy projects. They are also participating in new undertakings.
Eagle Spirit Energy has proposed a pipeline that would carry up to two million barrels a day of medium to heavy crude oil from Fort McMurray across northern BC and terminating on Lax Kw’alaams lands in Grassy Point near Prince Rupert. Eagle Spirit has indicated that it will redirect the pipeline to a port terminal in Alaska to bypass the tanker ban that will result from Bill C-48 being passed. The CEO of Eagle Spirit is a member of the Lax Kw’alaams Band. The project is expected to cost $16B. Financial backing has been provided by Vancouver’s Aquilini family, and AltaCorp Capital (partly owned by the Alberta government) has been hired to raise the first $12B that will be required.[1] It has the support of major energy producers including Suncor, Cenovus and MEG Energy. Although the Lax Kw’alaams are in favour of the project, the band’s hereditary chiefs support Bill C-48 and have not yet given their consent to the pipeline. And while Eagle Spirit indicated that the bands along the route support the pipeline, it remains to be seen if final agreements will actually be signed by them.
In addition, two private investor groups, Generating for Seven Generations and Alberta Alaska Rail Development Corp. are proposing to build railways that would run from Alberta’s oil sands to Alaska.
Equity interests in those proposed projects have been offered to various Indigenous communities.
Government Support
While private sector initiatives are rewriting the script on Indigenous participation in Canadian energy and energy infrastructure projects, Canadian governments are also fostering the involvement of Indigenous groups in this part of the Canadian economy.
Ontario Power Generation’s calls for renewable power proposals, the second round of Alberta’s Renewable Electricity Program and Alberta Infrastructure’s solar RFP all required that bidders have minimum levels of Indigenous participation. Those requirements resulted in numerous projects where developers partnered with First Nations and Métis communities.
In addition, a significant step in support of Indigenous commercial activity has recently been taken by the Province of Alberta. It intends to form the Indigenous Opportunities Corporation, the goal of which is to facilitate Indigenous communities’ financial participation in major resource projects, including pipelines. The IOC will assist those communities in assessing opportunities to invest in energy projects and will provide guidance in how to finance those investments. Alberta will invest $24M in IOC over four years and will earmark $1B to facilitate and backstop that financing.
Conclusion
There may be skepticism about the ultimate extent of Indigenous participation in Canadian commerce and whether these proposed equity investments by Indigenous peoples will actually occur. Major energy projects, in particular, are difficult to execute. Financing investments in them will be challenging. Expertise in the construction and operation of energy projects will have to be arranged by Indigenous investors either directly or through strategic partnerships.
And Indigenous peoples’ equity positions in these kinds of projects will not necessarily guarantee that opposition to them, including from other Indigenous peoples, will disappear.
However, the levels of participation and successful results Indigenous peoples have experienced in the energy sector to date, are encouraging. That sector employs twice as many Indigenous people as the national average, including in hundreds of Indigenous businesses in communities all over Western Canada.
Importantly, federal and provincial governments also strongly support Indigenous ownership as furthering reconciliation and as a step towards Indigenous peoples’ economic self-sufficiency. And given the current environment of increasing opposition to proposed energy projects the model going forward of involving Indigenous peoples as equity participants in these projects may be an effective way of securing their support and mitigating completion risks.
A condensed version of this article was published by Lexpert on August 30, 2019.
[1] Eagle Spirit is modelled after the Alyeska pipeline between Alaska’s Prudhoe Bay and Valdez. That project was built and is operated with involvement from the State’s Indigenous peoples.
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