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Trans Mountain Won’t Get Investors without Government Guarantee, IEEFA Concludes

Just two weeks after Finance Minister Chrystia Freeland declared that no more federal tax dollars will go into the financially troubled Trans Mountain pipeline expansion, analysts are warning that investors won’t touch the C$21.4-billion megaproject without government backing.

In a brief statement last month, Freeland said the project would rely on banks and public debt markets to fund pipeline construction, right after disclosing that the cost of the pipeline has increased 70% in two years, the Institute for Energy Economics and Financial Analysis (IEEFA) writes in a release this week.

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But that assertion “is grossly misleading to the public,” IEEFA’s director of financial analysis, Tom Sanzillo, said in the release. “Any new money poured into the pipeline will be backed by the Canadian taxpayer,” because “private money cannot be raised without a government guarantee.”

Texas-based Kinder Morgan quit the project and sold it off to Canadian taxpayers “because it was a bad bet for investors,“ Sanzillo added. “On its own, this project is not profitable. No amount of fiscal gimmickry can hide the fact that Canadian taxpayers must stand behind another estimated $8.8 billion. Investors won’t finance it without a guarantee.”

After a careful review of the project’s balance sheet, said Omar Mawji, IEEFA’s energy finance analyst for Canada, “the project is unbankable. To make a go of it, TMX would need to hike shipping tolls by 100%, raising the price of Canadian oil way beyond the level it needs to compete in the global market. Without substantial governmental support, the pipeline is unsustainable.”

IEEFA issued its report not long after British Columbia announced it had amended the conditions of its environmental assessment certificate for Trans Mountain, telling the federal government it still has concerns about its response to potential marine oil spills.

The changes announced in late February focus on the impacts of marine shipping and potential oil spills from ships related to the pipeline project, The Canadian Press reports this week.

The expansion is set to nearly triple the capacity of the existing 1,150-kilometre pipeline that carries 300,000 barrels per day of petroleum products from Alberta to B.C., which will significantly increase the number of tankers carrying oil for export.

In a letter relaying B.C.’s updated conditions, Environment Minister George Heyman and Energy Minister Bruce Ralston urged federal Natural Resources Minister Jonathan Wilkinson to adopt a series of recommendations that would address the province’s concerns after it consulted with Indigenous nations, municipalities, government agencies, and the public.

Those concerns would be most effectively addressed by Ottawa as part of the regulations and measures that fall under federal jurisdiction, Heyman and Ralston wrote in the letter, dated February 24.

B.C. has made changes that are under its jurisdiction and sought to avoid duplicating existing federal regulations, the province said in a news release.

One of B.C.’s recommendations encourages Transport Canada to “expand the scope of its oversight” to include work done by the Western Canada Marine Response Corporation, which responds to spills. In particular, it says Transport Canada’s oversight should include shoreline cleanup, planning for sunken and submerged oil, coordinating volunteers, and managing wildlife and waste in the event of a spill.

“We strongly urge you to carefully consider these important recommendations, and to take action on them… as soon as possible, so that the (Trans Mountain expansion) is operated in as safe a manner as possible,” the ministers wrote.

Among B.C.’s new conditions is a requirement that Trans Mountain, a federal Crown corporation, provide a report on health risks in the event of a marine oil spill. It must identify measures to reduce human exposure and negative health effects and outline which authorities would be responsible.

Another condition requires Trans Mountain to provide a report with baseline data on B.C.’s shoreline in areas that could be affected by an oil spill, including Vancouver’s English Bay and the Strait of Georgia. The report should include information on land use, infrastructure, and flora and fauna, the order says.

The province also amended a condition to require updates every five years on research Trans Mountain is involved with related to diluted bitumen and how the heavier, unrefined oil product could be cleaned up if spilled in water.

A Trans Mountain spokesperson said the company is reviewing the changes to determine next steps.

Neither Wilkinson nor anyone from his department was available to comment on the provincial government’s request, CP says.

Andrew Radzik, an energy campaigner with the Georgia Strait Alliance, said the province’s changes are welcome, but gaps remain.

“If a spill happens, we’ve got better baseline data. So that’s great, that’s important. That’s information that will inform spill response plans,” he said in an interview.

“But they’re not requiring shoreline spill response plans of a particular standard.”

Instead, the province is relying on federal regulations on marine shipping and spill response that it has criticized for being too vague, Radzik said.

Transport Canada requires certified marine response organizations to treat 500 metres of shoreline per day and the Western Canada Marine Response has indicated it’s working to increase its capacity to 3,000 metres.

But the existing regulations and emergency plans for the pipeline expansion lack some key detail, Radzik said, like what exactly it means to fully “treat” a shoreline.

The province shares jurisdiction along its shoreline and it could have amended the project’s certificate to require more specific information or standards, he said.

On human health risks, Radzik said it’s a step forward for B.C. to require an outline of the roles and responsibilities of different levels of government and the pipeline operator in reducing exposure after a potential spill.

However, it’s not clear who would foot the bill for those health measures and what portion the province would have to pay, he said.

Asked why B.C.’s new conditions didn’t include more specific requirements for marine spill preparedness and response, the Environment Ministry said the changes reflect certain criteria it had to follow in its review.

The opportunity for B.C. to change its environmental assessment certificate stemmed from a 2018 decision by the Federal Court of Appeal. It found the National Energy Board, since renamed the Canada Energy Regulator, had incorrectly excluded marine shipping from its assessment.

The regulator reconsidered the potential impacts, and the federal government used the subsequent report in 2019 to approve the pipeline expansion for a second time.

The B.C. Court of Appeal later decided that because the provincial ministers who issued the environmental assessment certificate had relied on the regulator’s original assessment, they should have the opportunity to consider the later report and make changes, provided the issues related to differences between the two reports and fell under provincial jurisdiction.

The second segment of this story was first published by The Canadian Press on March 8, 2022.