An Indigenous-led consortium of western Canadian First Nations is proposing to purchase a majority share of the Trans Mountain pipeline with plans to invest 80 per cent of income earned in an Indigenous sovereign wealth fund.
The remaining 20 per cent would be distributed to communities.
The federal government says it will start meeting officially with Indigenous groups interested in buying the project.
Since mid-2018, Delbert Wapass — former chief of the Thunderchild First Nation in Saskatchewan — and Harrie Vredenburg have been involved in Project Reconciliation. They are building a coalition of First Nations in western Canada to purchase a 51 per cent stake of the Trans Mountain pipeline and its expansion. All Indigenous communities in Saskatchewan, B.C. and Alberta have been invited to join.
The $7.6 billion needed to acquire the stake would come from a syndicated bond — essentially, a loan. There would be no taxpayer money involved or up-front costs to First Nations communities.
Since the pipeline and expansion already have long-term contracts to ship oil from Alberta to the marine terminal in Burnaby, it would generate profits to meet the communities’ high environmental standards — environmental monitoring, assessment and spill response — and provide income to build the Indigenous sovereign wealth fund.
The fund will be invested, like oil export sovereign wealth funds of Norway and oil-exporting countries of the Middle East, in a professionally managed, diversified international portfolio for long-term returns to Indigenous communities.
Returns from the sovereign wealth fund would, in turn, be channelled to a community investment fund. That would finance Indigenous needs such as housing, health care, sports facilities, scholarships, businesses and low-carbon energy.
Sovereign wealth funds were introduced in the 1950s, initially set up by commodity-rich countries that had accumulated substantial foreign-exchange reserves from commodity exports. The Kuwait Investment Fund was the first sovereign wealth fund, set up in 1953, to invest revenues from its oil industry.
The funds are characterized by ownership and control by a sovereign entity and involve investment, such as pension funds and endowment funds, in a diversified portfolio of real and financial assets globally. That includes stocks, bonds, real estate, precious metals, airports and toll roads.
Economists describe the aim of a sovereign wealth fund as converting physical natural resource wealth — usually oil — into financial wealth and preserving it in a trust format for the benefit of multiple generations. Of the 70 sovereign wealth funds listed by the Sovereign Wealth Fund Institute, the top three funds, holding assets of $2.04 trillion US, are all associated with oil-exporting countries.
Those include Norway, Saudi Arabia and United Arab Emirates.
Empirical studies show that, like pension and endowment funds, the objective for sovereign wealth fund investments should be strictly commercial. That is, to earn high financial returns, rather than investing for political motives, such as promoting specific industries or government policy objectives.
Studies I’ve co-authored show some pension funds, such as the Ontario Teachers’ Pension Plan, align policy objectives of supporting renewable energy companies and other socially responsible firms when these investment opportunities meet the plan’s profitability requirements.
Similarly, the world’s largest and most profitable sovereign wealth fund, that of Norway, is increasingly focusing on renewable energy as that field becomes more profitable and the country seeks to diversify away from fossil fuels.
That means pension funds and sovereign wealth funds play an important role in the global energy transition to lower carbon.
Canada’s Indigenous sovereign wealth fund intends to be part of this movement.
Although First Nations in Canada do not constitute a sovereign nation state with their own currency, central bank and foreign currency reserves, they do have strong aspirations of recognition for their political and economic sovereignty over traditional territories as part of the reconciliation process.
These aspirations are increasingly recognized societally and are the drivers behind the now conventional Canadian terminology of “First Nations,” rather than bands or tribes. It also involves the evolution of names of Indigenous organizations to those that include the words “sovereign” and “nation.”
Indigenous peoples were the first stewards, or owners, of the natural resources of their traditional territories. It is ethical to acknowledge this ownership through material Indigenous ownership of the commodity wealth produced from these territories.
The priority of First Nations leaders is to emerge from the yoke of the Canadian government’s Indian Act administration and be masters of their own nations.
There is a need for resource industries to engage ethically with Indigenous peoples and respect traditional Indigenous knowledge and community sovereignty.
And, a United Nations Development Program project Vredenburg led in Latin America, where the oil industry stimulated sustainable economic development for Indigenous communities, emphasized a need for Indigenous community sovereign decision-making over their development.
Financial modelling by Project Reconciliation of estimated income flows from the pipeline show annual income of $250 million. Of that, about $200 million annually would go to the Indigenous sovereign wealth fund to create long-term wealth. That would leave $50 million per year to be distributed directly to the community development fund to finance the needs of Indigenous communities.
Over the next 50 years, the sovereign wealth fund’s investments are expected to earn $12.5 billion. That means it would very likely permanently improve Canadian relations with its Indigenous peoples.
Harrie Vredenburg is professor and Suncor chair in strategy and sustainability, Haskayne School of Business and a research fellow at the School of Public Policy at the University of Calgary. Delbert Wapass is executive chairman of the Project Reconciliation group and former chief of Thunderchild First Nation.