OTTAWA - Canada's parliamentary budget watchdog says the Liberal government paid the “sticker price” when it bought the Trans Mountain pipeline from Kinder Morgan for $4.4 billion.
Parliamentary Budget Officer Yves Giroux estimates the Trans Mountain pipeline and planned expansion project are worth between $3.6 billion and $4.6 billion, so taxpayers paid the high end of the project's total calculated value.
“If it was a car, we would say they paid sticker price, they didn't negotiate very much, they didn't get that many deals or manufacturers rebates - quite the opposite,” Giroux told reporters Thursday morning.
Expanding the pipeline's capacity will come at an estimated cost of $9.3 billion if the project is completed by Dec. 31, 2021, the PBO estimates.
But should the project encounter any construction delays or cost increases, Giroux says, “then it's quite clear to us that the government would have overpaid” for the pipeline.
An existing pipeline connects Alberta's oilpatch northeast of Edmonton to a terminal in Burnaby, B.C., and its owner Kinder Morgan tried to expand it for years to increase the amount of crude oil it could carry. The federal government bought the pipeline from Kinder Morgan in August after political opposition to expanding the pipeline between Alberta and the B.C. coast gave the company and its investors cold feet. (It announced the purchase price as $4.5 billion but Giroux reported that after final adjustments, the net payment to Kinder Morgan was $4.4 billion.)
The Federal Court of Appeal struck down Ottawa's approval of the project in a ruling delivered on Aug. 30, saying Canada failed to meaningfully consult with First Nations and that the National Energy Board failed to examine how the project would affect marine life.
Given that the 2021 completion date was set before the court ruling was delivered, Giroux says he believes the expansion is likely to face delays and, in turn, financial losses.
“All indicators point that there will likely be a delayed construction. And construction costs - I think it's also quite possible they will increase,” he told reporters.
A one-year delay in the project would reduce its value by $700 million. A 10-per-cent increase in construction costs would reduce the value by $450 million.
The PBO analysis did note the project could have positive impacts on the country's economy and on oil prices if the expansion is completed on time and on budget. The main benefit would come from the ability for Canadian producers to sell more oil to export markets, which would reduce the discount currently imposed on Canadian crude. This could translate to a $6-billion boost to gross domestic production (GDP) and create up to 7,900 jobs during the construction period.
But the fact the government was the only buyer for this project is a warning sign.
“It's a very risky project to have bought something that nobody else in the private sector wanted to acquire. There are lots of retirement or pension plans that like to buy infrastructure of that nature that generate streams of revenues,” Giroux said. “From a financial perspective, the risks are significant for taxpayers, but should this get built, it will be a relief for the oil sector in Alberta because it will accelerate the opening of markets for Canadian oil.”
If the pipeline expansion does not go ahead, the value of the project would drop significantly, and cause the government to lose upwards of $2.5 billion, Giroux added, calling this the worst-case scenario.
Ottawa is now consulting with Indigenous groups and the National Energy Board has been reviewing the effects of increased tanker traffic on marine life.
The board is to have its report ready by Feb. 22.
