Pipelines being driven by private equity firms through ratings agency
they now own
Posted October 2, 2016 by Common Sense Canadian in Politics
By Joyce Nelson
You may have caught the Sept. 12 headline in the Globe and Mail, the
Edmonton Journal, etc: “Canada needs new energy pipelines, bond rating
A new report from DBRS, Canada’s credit ratings agency (CRA), says
Kinder Morgan’s TransMountain pipeline expansion, Enbridge’s Northern
Gateway pipeline, and TransCanada Corp’s Energy East pipeline are all
necessary, but, as the Edmonton Journal put it, the “strong political,
environmental and regulatory opposition” to these projects throws “a big
question mark over Canada’s energy future,” the report says.
Ratings agency bought by private equity firms
DBRS is Canada’s (small) equivalent to the big three CRAs: Moody’s,
Standard & Poors (S&P), and Fitch, which wield enormous power around the
world by granting or downgrading the Triple-A ratings of companies,
countries, and governments. The threat of a downgrade by a CRA can
create scary media stories, especially if the target is a local government.
In December 2014, DBRS was bought up by two huge private equity firms –
Carlyle Group LP and Warburg Pincus LLC. Both invest billions in energy
projects around the world.
Conflict of interest
Since the 1970s the CRAs (aside from sometimes issuing unsolicited
ratings) are paid for their services not by investors who want to know
the safety of a bond being issued, but by the bond issuers themselves –
who obviously have a stake in getting a Triple-A rating for their
investment vehicle. These factors came into play during the U.S.
subprime mortgage bubble, when some investment banks were paying the big
three CRAs millions of dollars for Triple-A ratings on what turned out
to be toxic assets.
In July 2014, I wrote a three-part series (“Debunking the Bogeyman”) on
CRAs for Rabble.ca, so I knew a bit about how these CRAs operate. When I
saw that DBRS had been purchased by Carlyle Group and Warburg Pincus, my
first thought was: I wonder what those investment giants will do with DBRS?
Prentice delivers message for private equity firms
Fast-forward to September 12, 2016 and the new DBRS report, stating: “If
pipeline infrastructure is not built, Canada’s energy sector
increasingly risks the eventual loss of global market share” and “could
eventually see their credit ratings change without more overseas access…”
The next day, September 13, Bloomberg reported that PM Justin Trudeau is
said to be favouring Kinder Morgan’s pipeline expansion, but former
Alberta premier Jim Prentice “warned Kinder Morgan’s project alone won’t
Bloomberg quoted Prentice:
‘We need pipelines, we need pipelines to the West Coast, and most
advantageous for Canada of course are pipelines into the Asia-Pacific
basin and Trans Mountain would certainly be helpful,’ Prentice, a
Calgary-based adviser in the energy group at Warburg Pincus, said
Tuesday at the Bloomberg Canadian Fixed Income Conference in New York.
The Bloomberg quote from Prentice continued: “‘But we also need to bear
in mind that Trans Mountain won’t solve the problem,’ because tankers
that can navigate the region are too small to service Asia, he said.
Canada needs an energy port that can ship up to two million barrels per
day to Asia, Prentice said, and Canadians should be concerned that
investors are cooling to the country’s oil patch. ‘The concern that
really should alarm us as Canadians is low-cost capital is exiting the
Canadian basin,’ he said.”
So Warburg Pincus adviser Jim Prentice is endorsing the views of DBRS,
owned by Warburg Pincus and the Carlyle Group, which have billions they
want to loan to governments for investment in infrastructure. Prentice
had earlier been a paid advisor for Enbridge in 2014, helping the
company negotiate with First Nations opposed to Northern Gateway.
Making the picture even more interesting, on September 12 the Financial
Post reported that Mark Jenkins, global head of private investments at
the Canadian Pension Plan Investment Board (CPPIB) is leaving to take a
senior leadership role at the Carlyle Group. The CPPIB’s Mark Wiseman
has already left to work for BlackRock, the biggest asset manager in the
As I reveal in my forthcoming book – Beyond Banksters: Resisting the New
Feudalism – all these big financial players are central to the
infrastructure and privatization plans being rolled out for Canada and
North America in the coming months. The Justin Trudeau Liberals are
planning to spend $120 billion on infrastructure (by borrowing from
private sources), and are readying for their 2017 budget announcement,
which will reveal Phase 2 of their big infrastructure plans.
On November 14, BlackRock (which manages trillions of investment
dollars) will host a private summit for major international investors
hoping to loan billions of dollars to Canadian governments for
infrastructure spending. On the speakers list are Justin Trudeau,
Finance Minister Bill Morneau, Infrastructure Minister Amarjeet Sohi,
and other federal officials.
Will the Carlyle Group and Warburg Pincus be at that private summit? You
can safely bet on it. Will the press be allowed to cover this private
summit that includes our elected officials? That’s a big question. Will
DBRS be playing a bigger role in the next few months? Stay tuned.
Sustainablelorgbiofuel mailing list