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Budget officer finds TMX a money loser after Freeland insists it's not

Finance Minister Chrystia Freeland and energy and Natural Resources Minister Jonathan Wilkinson before a meeting of the Standing Committee on Natural Resources on Nov. 4, 2024. Photo by Natasha Bulowski/Canada's National Observer

A new valuation of the Trans Mountain pipeline (TMX) by Canada’s Parliamentary Budget Officer contradicts a more optimistic assessment of the controversial pipeline expansion by Finance Minister Chrystia Freeland last week. 

The PBO, Yves Giroux, announced Friday that TMX is worth less than the $34.2 billion it cost to build. That doesn’t mesh with Freeland’s testimony before a parliamentary committee last Monday where she maintained the pipeline, which the Liberal government bought in 2018, is worth its price tag, adding: “I hope that we’re going to sell it for more.”

That drew a blast from NDP MP Charlie Angus. “Chrystia Freeland came to committee and completely gaslit us on the benefits of TMX,” Angus told Canada’s National Observer in a phone interview.

“She was assuring us that they were going to sell TMX for more than it cost, and she also denied that we're subsidizing the tolls. These are big issues that have to be cleared up.”

TMX’s construction costs ballooned from an estimated $7.4 billion in 2018 to $34.2 billion today. The Canada Energy Regulator is hearing arguments about whether the tolls charged to ship oil through the pipeline should be increased and by how much, to account for a portion of the steep cost increases. A September report from the International Institute for Sustainable Development shows that allowing the current discounted toll rate could amount to a subsidy of $8.7 to $18.8 billion, depending on a range of factors. 

The PBO’s updated analysis, published Nov. 8, estimates TMX could be worth between $29.6 billion and $33.4 billion, depending on what happens after the initial 20-year shipping contracts expire.

This doesn’t mean a buyer would be willing to pay that much to acquire the pipeline system, and even if they were, the sale would still result in losses between about $5.6 billion to $15.2 billion, according to the PBO’s numbers. 

“The PBO report, even under the most optimistic scenario which is highly unlikely, says the government's not going to get its money back. And then, when you look at the different scenarios which are more realistic, like lower capacity utilization of the pipeline, the losses go up,” Simon Fraser University professor Thomas Gunton told Canada’s National Observer in a phone interview.

The PBO report’s scenarios are optimistic because it assumes the pipeline is going to be used to its full capacity for its 40-year operating life, even though its existing contracts only cover about 80 per cent of capacity, said Gunton, who recently published the report on how the TMX toll structure amounts to a subsidy between CAD $8.7 billion and $18.8 billion.

The PBO's most recent analysis found #TMX is worth less than the $34.2 billion it cost to build, which appears to contradict Chrystia Freeland's statements that the pipeline system is worth its pricetag and could hopefully be sold for even more.

It is “highly unlikely” that other shippers will opt to use Trans Mountain because there are cheaper alternatives, like Enbridge, Gunton said.

The PBO noted that the final sale price depends on many variables, including the outcome of toll hearings currently playing out at the Canada Energy Regulator (CER), who the potential buyers are, when the sale occurs, market conditions when it is sold and whether certain groups (potentially Indigenous buyers) are prioritized, among other factors.

“Additionally, if the pipeline operates for longer than 40 years, or if there is a salvage value, our estimate of the potential sale price could increase,” reads the PBO report. 

Angus wants Giroux to appear, once again, at the federal Standing Committee on Natural Resources to break down the numbers in his latest report and weigh in on the toll issue currently being hashed out at the CER.

“Who's going to buy a pipeline to run for profit, if the tolls are subsidized? Who's paying the subsidy for all those barrels of bitumen going down the pipe?” Angus asked, noting that the current tolling structure only covers about half what it cost to build the pipeline.

During her testimony at committee on Nov. 4, Freeland pointed to University of Calgary economics professor Trevor Tombe’s analysis that TMX was worth the high price tag and called it, “a profitable nation-building investment in terms of tax revenues, in terms of jobs and in terms of the actual money that we are getting.” 

“The Trans Mountain Expansion Project will ensure Canada receives fair market value for our resources while maintaining the highest environmental standards,” Freeland’s press secretary Katherine Cuplinskas wrote in an emailed statement to Canada’s National Observer. 

“This is in addition to being an important investment in Canada’s economy, generating significant operating revenues and creating well-paying, middle-class jobs. The Bank of Canada estimates that it will contribute 0.25 per cent to Canada’s GDP.”

She added that the federal government “will launch a divestment process in due course.”

The sale of the pipeline will likely occur after the toll dispute is settled because the final tolls will affect the pipeline’s value. The TMX toll hearings are currently scheduled for May 2025.

The federal government purchased TMX from Kinder Morgan for $4.4 billion in 2018 — investing an additional $300 million for startup costs — back when the company pegged total construction costs at $7.4 billion. Over the years, construction costs kept increasing and are now sitting at $34.2 billion.

The now-completed Trans Mountain pipeline carries crude oil from Alberta to the B.C. coast. Its expansion tripled the capacity of the existing pipeline, adding an additional 590,000 barrels per day of shipping capability, bringing the pipeline’s total capacity to 890,000 barrels per day.

In 2022, Freeland pledged not to spend any more public funds on the already over-budget pipeline. Instead, the federal government started issuing loan guarantees to convince banks to finance the project — effectively promising that if Trans Mountain can’t pay back the loan, taxpayers will foot the bill. Analyses by a number of experts predict the federal government will have to forgive this debt.

Last week, Greg Reade, assistant deputy minister of the Economic Development and Corporate Finance Branch, told the committee TMX’s cash flow will be sufficient to pay for operating costs, financing costs and some of the debt. He did not say how much debt it could cover, and said the department hasn’t looked at debt forgiveness.

— With files from the Canadian Press

Natasha Bulowski / Local Journalism Initiative / Canada’s National Observer

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