Trudeau’s investment in Trans Mountain is ‘clearly’ not profitable: watchdog

Canada’s financial watchdog says the federal government is “very unlikely” to recoup its $4.5 billion investment in the Trans Mountain pipeline now that project costs have soared 70%.

On February 18, Trans Mountain Corporation announced that the projected cost of the pipeline expansion had risen from $12.6 billion to $21.4 billion. The press release said the COVID-19 pandemic and last year’s flooding in the Hope, Coquihalla and Fraser Valley regions of British Columbia contributed to the increased costs.

Last week, NDP Environment and Climate Change Critic Laurel Collins wrote to Parliamentary Budget Officer (PBO) Yves Giroux asking for an update on the pipeline cost analysis. and the expansion project.

“It’s crucial that we hear from the Parliamentary Budget Officer again to make it clear what a mess this project is,” Collins told Canada’s National Observer.

Even before costs jumped, the project was already walking a fine line between profitable and unprofitable, according to a 2020 PBO analysis.

Based on the previous cost estimate of $12.6 billion, a start date of December 31, 2022, and several other factors, the net value of the pipeline and expansion project was $600 million. dollars. Now, the completion date has been pushed back to somewhere between July and September 2023, and Giroux told the National Observer that he “doesn’t expect there to be any profit from this pipeline, at least for the federal government”.

According to his previous analysis, if construction costs increased by even 10% to $13.9 billion, the project’s net present value would be an $800 million shortfall.

“Now that we’re talking over $20 billion in construction costs, it’s clearly unprofitable,” Giroux said.

“It will likely result in losses to Canadian taxpayers whenever the government decides to sell the pipeline to a private sector entity,” he said, adding that loss is the most likely outcome unless some of its key assumptions do change.

For example, if the price that oil producers are charged with using the pipeline “rises significantly”, the project could come close to breaking even, but “the long-term contracts that are used for the majority of the capacity of the pipeline do not suggest that will be a possibility in the near future,” he said.

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Giroux said that from a financial perspective, killing TMX at this time would be the worst outcome, as it would mean bearing the cost of the money spent so far and foregoing additional revenue from the expansion.

When the cost increase was announced, Finance Minister Chrystia Freeland said no more public funds would go to the Trans Mountain Corporation and that the state-owned company that owns the huge pipeline will have to get funding third parties through banks or public debt markets to complete the project. She said the project is “in the national interest and will make Canada and the Canadian economy more sovereign and resilient.”

Steven Guilbeault says climate action isn’t tied to TMX revenue

Because the pipeline will generate cash flow for decades, it will be able to fund itself in the private market by borrowing from institutional, bank or corporate investors, but the operator will have to borrow at higher rates, so the cost of funding will likely increase, says Giroux.

Former federal environment minister Jonathan Wilkinson, now minister of natural resources, previously told CBC last August that Canada needed to maximize profits from the Trans Mountain expansion to fund climate action and achieve net zero emissions by 2050.

But Steven Guilbeault, who is now Minister of the Environment, has hinted that Canada will no longer need these revenues.

“If the only thing we were doing to fight climate change was to use profits from pipeline sales to invest in clean or climate-friendly technologies, I would be worried. But that’s not the case,” Guilbeault said, referring to measures such as methane regulations, carbon pricing, dedicated funding for cycling and pedestrian infrastructure, and investments in vehicles and battery chargers. zero emissions.

“What we need to do… going forward (is) reduce our reliance on fossil fuels more and more,” he said. “Does this mean that there will be absolutely no more projects built in Canada? That’s not what we say. What we’re saying is that we need to do less and less and more and more things that will help us reduce our emissions – like clean technology, like public transit, like electrification, like renewable energies.

According to the most recent interim report from the Canadian Development and Investment Corporation, the federal government has already borrowed and invested well over $14 billion in the project, including the initial purchase. The Trans Mountain Corporation will need to secure more than $10 billion in financing to cover the project’s revised cost of $21.4 billion.

Freeland’s office did not respond to National Observer’s request for comment on time.

Eugene Kung, a lawyer with West Coast Environmental Law, says Freeland’s pledge to no longer fund the project is “a bit of window dressing” because any debt incurred by a state-owned company is public debt .

“It’s misleading to give the impression that it won’t cost the Canadian public more, because it will,” he said.

The current Trans Mountain pipeline carries 300,000 barrels of oil per day and is the only pipeline system in Canada carrying oil from Alberta to the West Coast. The expansion project will essentially double the existing pipeline, bringing daily production to 890,000 barrels.

Since the purchase of TMX in 2018, the federal government has justified its decision by saying that “every dollar” earned from the pipeline “will be invested in Canada’s clean energy transition.”

Collins said that claim was dubious at best from the start given the PBO’s financial assessments of the project and the urgent need to ditch fossil fuels and reduce emissions.

Although the rising costs clearly indicate that the federal government will not reap great benefits from the sale of TMX, Giroux said his assessments could not take into account broader impacts like better prices for Canadian oil, which which he says could potentially lead to higher taxes for producers and more jobs in the oil sector.

A central rationale for the project is that the expansion would allow Canada to get a fair price for its oil in Asian markets. This claim was challenged by a 2020 study by the Canadian Center for Policy Alternatives which found that Canadian producers would suffer a loss of US$4-6 per barrel if they sold to Asian refineries via TMX compared to selling to refineries. Americans.

Just as the broader economic impacts of the pipeline are difficult to calculate, so are the costs of climate change.

A new IPCC report warns that humanity is entering an era of irreversible disruption unless there is immediate large-scale action to reduce emissions and lays bare the high costs of climate change for vulnerable communities worldwide. More serious climate impacts — like the disastrous wildfires, floods and heat waves that marked the summer and fall of 2021 — are just a glimpse of what’s to come, the report says.

Collins said the NDP is calling on the federal government to scrap the TMX pipeline, calling it an “economic and environmental disaster.”

“The people paying the price are Canadians, it’s our communities,” said the MP for Victoria. “The cost is borne both in terms of dollars spent, but also in terms of cost in terms of flooding, extreme heat, impacts on our food systems and the future of our children and grandchildren. .”

Giroux said his office will do a cost analysis “probably sometime this year” when more detailed financial information becomes available, adding that it cannot be done in the immediate future as their work plan is “already quite comprehensive. “.

— With files from The Canadian Press

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