Will go down in history as a shockingly high-priced project with startling cost overruns
Published Mar 16, 2023 • Last updated 19 hours ago • 4 minute read
A pipe yard servicing Trans Mountain in Kamloops, B.C. Photo by Jennifer Gauthier/Reuters/File Photo Late Friday afternoon, the traditional slot for bad news, Trans Mountain Corporation (TMC) announced its pipeline expansion costs have ballooned to an eye-watering $30.9 billion, 44 per cent more that its year-ago estimate of $21.4 billion, which was up from its previous guesstimate of $12.6 billion, which was more than quadruple its first pie-in-the-sky projection of $7.4 billion and 5.7 times original owner Kinder Morgan’s (KM) costing of $5.4 billion. Also, the operational date was extended yet another six months, to the first quarter of next year. When it is finally completed, the expansion will nearly triple the flow of crude oil and refined products from Edmonton to Burnaby. Remarkably, Trans Mountain will remain the only Canadian oil pipeline to tidewater.
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Access articles from across Canada with one account Share your thoughts and join the conversation in the comments Enjoy additional articles per month Get email updates from your favourite authors Some factors explaining the latest $9.5 billion cost hike were unpredictable, like global inflationary pressures, supply chain challenges, B.C. floods and wildfires and archeological discoveries. Others could have been foreseen, like building infrastructure in densely populated areas and through challenging terrain. Then there is this chilling warning in the company’s press release: “As with all projects of this size, risks to the final costs and schedule will remain as work is completed through 2023. The current cost estimate does not include reserves for extraordinary risks that can impact projects of this nature.” That raises concerns over how large these reserves are and how likely it is they will be drawn down, thereby driving up the astronomical expenditure even further. In the unlikely event there are no further escalations or delays, TMC will still go down in history as a shockingly high-priced project with startling cost overruns. Recall that the parliamentary budget officer (PBO) declared it unprofitable when the price hit $21.4 billion.
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Article content Deputy Prime Minister and Finance Minister Chrystia Freeland claimed that “As we committed to Canadians last year, no additional public money will be invested in this project as construction is completed.” Not so fast. Private-sector lenders are not usually receptive to a project whose costs are out of control and which may be unable to repay on-going interest charges or principal. They might be willing to rely on an implicit government backstop for needed additional loans, provided they rank ahead of any public-sector claims. More likely, lenders will require a Government of Canada guarantee, as the banks did for their last $10 billion loan. Given its materiality, any such guarantee will have to be disclosed in public accounts.
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Article content Freeland cannot target a fall guy, like she did the last time costs ballooned and she had then CEO Ian Anderson fired. She herself approved hiring new CEO Dawn Farrell. One thing we can be sure of: Prime Minister Trudeau won’t let Freeland shift responsibility up the chain of command, even though the buck — or bucks, billions of them — stop with him. KM decided in 2018 it would not go ahead with the project, in spite of $1 billion dollars in sunk costs, since Liberal policies had unacceptably increased political and regulatory risks and delays. Trudeau effectively killed Northern Gateway and Energy East and introduced the perverse “No more pipelines” Impact Assessment Act. So this debacle flows directly from his government’s hostility to fossil fuel development, especially pipeline construction, irrespective of its enormous potential contribution to the national interest in jobs, economic growth, revenue to governments, energy security and national unity.
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Article content Not surprisingly, minister of environment and climate change Steven Guilbeault’s bestie Greenpeace remonstrated that buying and building the pipeline would go down as one of the worst infrastructure decisions ever made by a Canadian government. But in spite of its climate change zeal, the government would have had a hard time convincing Canadians they should permanently land-lock the world’s third largest proven oil reserves. Every other energy-rich country, be it a dictatorship, theocracy, kleptocracy or progressive democracy, eagerly cashes in on its immense good fortune, notwithstanding the hypocritical green rhetoric (see Norway). KM had the Liberals over a barrel, so to speak, and managed to pocket a handsome $4.5 billion bailout for offloading a gigantic looming liability.
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Article content Silicon Valley Bank is part of global move to mark-to-market: Opinion Feeble business investment shows Morneau is right about stagnation It’s past time to reform Canada’s capital gains tax. But how exactly? Minister Freeland further declared that “The federal government does not intend to be the long-term owner of the project, and we will launch a divestment process in due course.” But a once-desperate buyer who overpaid, now transformed into a motivated seller, is unlikely to attract top dollar. The only question is how many billions of Canadian taxpayers’ dollars the government will lose.
Public attention is justifiably focused on the prime minister’s highly suspicious refusal to come clean on what he knew and when he knew about the Chinese government’s elaborate actions to influence Canada’s elections in favour of the Liberal party. But despite the glut of other scandals, we should not ignore the Trans Mountain financial fiasco, which evidences the damage Liberal anti-energy policies are inflicting on the economy and the welfare of Canadians.
Joe Oliver was minister of natural resources and minister of finance in the Harper government.