Federal government faces potential loss if Trans Mountain pipeline sold: PBO

The national authorities faces a imaginable nonaccomplishment connected the merchantability of the Trans Mountain pipeline arsenic it estimates it’s worthy little than it outgo to build, the parliamentary fund officer said Friday.

The pipeline could beryllium worthy betwixt $29.6 cardinal and $33.4 billion, depending connected what happens aft the archetypal 20-year contracts expire, the fund watchdog said successful an updated fiscal appraisal of the arguable project.

Meanwhile, the outgo to physique the pipeline, which went into work successful May, came successful astatine $34.2 billion, dramatically higher than the $7.4 cardinal estimation successful 2017.

The PBO’s valuation estimation doesn’t origin successful sunk costs, specified arsenic the $4.5 cardinal the national authorities paid to bargain the task successful 2018, oregon superior spending earlier 2024.

Whether the authorities makes a nett oregon takes a nonaccomplishment depends connected what idiosyncratic is consenting to wage for it, the PBO said successful its report, noting the galore variables astatine play.

The imaginable merchantability volition beryllium influenced by the fig of imaginable buyers, their outgo successful raising capital, erstwhile and however it volition beryllium sold, the marketplace conditions astatine the time, whether it volition beryllium an arm’s-length transaction, and whether curtains groups volition beryllium prioritized successful the sale, the PBO said.

But it said if sold astatine the PBO’s estimated value, it faces a loss.

Government-owned Trans Mountain Corp. had assets of $35.2 billion, liabilities of $26.9 cardinal and shareholder equity of $8.3 billion, arsenic of Dec. 31, 2023.

“If the Trans Mountain Pipeline strategy was sold successful 2024 astatine either of the (present values) calculated by PBO, aft the outstanding liabilities are repaid, the remaining magnitude would beryllium little than the shareholder’s equity. TMC would person to constitute disconnected the equilibrium of the equity and grounds a loss.”

For its valuation estimates, the PBO said the higher valuation would beryllium if the existent contracts are renewed aft 2 decades, portion the little scope would beryllium if the pipeline reverts to a cost-of-service scenario.

The PBO notes that scenarios outlined by the Canada Energy Regulator amusement determination could beryllium sizeable spare capableness successful the pipeline by the aboriginal 2040s, depending connected what clime enactment is taken successful the meantime.

The Trans Mountain pipeline carries crude lipid from Alberta to the B.C. coast. Its enlargement tripled the capableness of the existing pipeline, adding an further 590,000 barrels per time of shipping capability, bring the pipeline’s full capableness to 890,000 barrels per day.

The Trans Mountain enlargement has brought an extremity — for present — to the proscription bottlenecks that for years kept a lid connected the Canadian lipid industry’s quality to grow. With caller quality to vessel barrels retired of Western Canada’s oil-producing region, companies person been capable to crook connected the taps.

Now that it is completed, Canadian lipid accumulation is smashing records and economists accidental Trans Mountain volition supply a assistance to the GDP of some the state of Alberta and Canada arsenic a full this year.

The national authorities has said it does not privation to beryllium the semipermanent proprietor of the pipeline and has already launched the archetypal of what is expected to beryllium a two-phase divestment process. The archetypal signifier involves talks with much than 120 Indigenous nations located on the Trans Mountain way to spot if immoderate of them are funny successful an equity stake.

The 2nd phase, for which the timing is unclear, volition impact the information of commercialized offers.

Complicating immoderate prospective sale, however, is the information that Trans Mountain Corp. is inactive locked successful a quality with lipid companies implicit the tolls it wishes to complaint to usage the pipeline.

Trans Mountain is looking to complaint higher tolls to offset immoderate of the project’s fund overruns, but lipid companies don’t privation to beryllium held liable for construction-related challenges.

The Canada Energy Regulator is scheduled to clasp an oral proceeding connected the tolling quality adjacent spring. Critics accidental if the CER determines the lipid manufacture should not person to wage for the bulk of the government-owned pipeline project’s outgo overruns, past taxpayers volition beryllium near connected the hook.