The cost of the Trans Mountain pipeline expansion could balloon to C$9 billion—far above its original $5.4-billion price tag, or its current $7.4-billion estimate—and the project has only managed to survive this long with big public subsidies and the willing support of Canadian banks, independent economist Robyn Allan charges in an op ed in the Vancouver Sun.
Allan, former president and CEO of the Insurance Corporation of British Columbia, calculates project subsidies above $3 billion and climbing, not including $1.7 billion in Canadian investment that went directly to Houston-based Kinder Morgan to help it pay off its debts.
The inventory begins with a $286-million special fee that Canada’s National Energy Board (NEB) approved in 2011, over the objections of Canadian oil producers. “If they need financing, then they should go to the market,” Chevron said at the time, responding to what it called an “extraordinary precedent”.
Then the NEB doubled the regulated toll charges Kinder Morgan could collect on an existing pipeline between B.C. and Washington State, bringing the company a windfall of more than $350 million per year. Allan also counts Canada’s $1.5-billion Oceans Protection Plan as a project subsidy—an analysis she says Prime Minister Justin Trudeau confirmed when he threatened to cancel the program if Trans Mountain fails.
Allan maps out a spotty financial history for the project, recalling that the U.S. company, a descendent of the disgraced Enron empire, originally claimed it would fully fund the pipeline. But “by late 2014, KMI was in financial trouble and could no longer deliver,” she writes. The $7.4-billion project estimate, a 40% increase over the original cost, emerged in March 2017, and “U.S. private capital markets summarily rejected the expansion. Kinder Morgan was unable to raise debt or equity and no joint-venture partner could be found—U.S. investors saw the writing on the wall.”
So Kinder Morgan formed a Canadian subsidiary, announced a public share offering, and sold off 30% of the value of the project. “None of the proceeds were for the expansion,” Allan writes. “The $1.7 billion raised was siphoned from the Canadian economy to pay off debt the Texas parent owed.”
Next, the U.S. parent gave the Canadian subsidiary full responsibility for raising project financing, even though Houston still held 70% ownership. “The foreign parent had effectively washed its hands of all financing responsibility while retaining the majority of any benefits for KMI’s U.S. shareholders,” she writes.
Yet Canadian banks were only too happy to comply, helping Kinder Morgan Canada raise $4 billion for pipeline construction, a $1-billion contingency fund against cost overruns, and $550 million in preferred shares.
With all of those moves in mind, Allan takes Kinder Morgan to task for announcing in its April 8 ultimatum that it won’t be updating its cost or scheduling estimates for the troubled project.
“Why not?” she asks. “If there were any time the Canadian public has a right to know the likely cost of the expansion, it’s now. Especially since taxpayers are being set up to pay for it.”