‘Smokescreen’ Masks $17B Taxpayer Cost for Trans Mountain Pipeline

The federal government is relying on “irrelevant” analysis and a “smokescreen” on public information to justify the $17 billion Canadian taxpayers are likely to pay for the controversial Trans Mountain pipeline, a veteran analyst warns.

A report last week by independent economist Robyn Allan, a former president and CEO of the Insurance Corporation of British Columbia, says Trans Mountain wasn’t a financially sound venture when the federal cabinet decided to buy Canadians a pipeline in 2018, and it isn’t commercially viable today. Contrary to assurances from Finance Minister Chrystia Freeland that “no additional public money” will go into the $21.4-billion megaproject, “this lack of profitability and commercial viability means more than $17 billion in debt owed to Canadians will not be repaid,” writes West Coast Environmental Law in a synopsis of the report.

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With Allan reporting that Trans Mountain’s contracts with oil shippers are priced too low to make the pipeline profitable, WCEL adds, “debt forgiveness is looming.”

Allan’s report lays out a complicated corporate structure in which a federal Crown corporation, the Canadian Development Investment Corporation (CDEV), set up a subsidiary called TMP Finance to funnel financing to the pipeline. CDEV originally said TMP Finance was needed to “acquire, finance and provide strategic direction of Trans Mountain Corporation,” Allan writes, citing a CDEV quarterly report from 2018.

But it’s hard to provide strategic direction from a company that has no staff, and the federally-owned Trans Mountain could just as easily have received its funding directly from government coffers. But “had it done so, Trans Mountain’s losses and compromised commercial viability could not be hidden from view,” Allan writes. “And herein lies the function of TMP Finance.”

She says the subsidiary’s purpose is mask the project’s true financial position, continue funnelling taxpayer support, and step up in the future “to book the debt write-offs necessary to continue Trans Mountain’s façade of profitability and viability.”

In an October 7 email, Finance Canada spokesperson Caroline Thériault reiterated that “no additional public money will be spent on the project,” and that funding to complete the pipeline will come from third-party financing. She cited financial analyses by BMO Capital Markets and TD Securities that declared the project financially viable, even after its price tag ballooned from $5.4 to $21.4 billion.

Allan said it’s impossible to assess that claim because Ottawa has never released the two reports, but the limited information available is not encouraging.

“Finance Canada defines viability differently than Canadians do,” she told The Energy Mix in an email. “Finance simply asks if operating costs can be covered from the revenues received by oil product shippers. They stop short of protecting the interests of Canadian taxpayers because they do not incorporate the payment of interest and the repayment of debt owed to us.”

BMO and TD also appear to have assessed Trans Mountain’s viability over a 100-year repayment period, not the more realistic 20 years that Texas-based Kinder Morgan used before it sold the project off to the federal government. The extended payback “supports the conclusion that the project is not viable since an unrealistic time horizon—one that requires 10 decades of assumptions on revenues, expenses, and project utilization—is being relied on,” Allan wrote.

That technique “tells us that the interest expense and debt obligation will not be met,” she added. “If anything, Finance Canada pointing to TD and BMO recent analysis with [the] 100-year cut-off date tells us Ottawa already accepts that $17 billion in debt owed to Canadians will not be repaid.”

To make Trans Mountain commercially viable, “this debt will need to be written off at taxpayers’ expense and as a huge subsidy to the oil sector,” Allan wrote. “The prudent solution is to cancel the project unless the tolls charged oil product shippers are raised high enough to pay for the debt incurred to build them a pipeline and cover all the operating costs as they use it.”