Federal government faces potential loss if Trans Mountain pipeline sold: budget watchdog
The Parliamentary Budget Office recently released a financial assessment of the Trans Mountain pipeline, revealing that the federal government may face a loss on the sale of the controversial project. The estimated value of the pipeline is between $29.6 billion and $33.4 billion, while the cost to build it came in at $34.2 billion, significantly higher than the initial estimate of $7.4 billion in 2017.
The valuation estimate provided by the PBO does not include sunk costs such as the $4.5 billion the government paid to acquire the project in 2018, or capital spending before 2024. The potential profit or loss from the sale will depend on various factors, including the number of potential buyers, market conditions, and the terms of the transaction.
If the pipeline is sold at the estimated value by the PBO, it is likely to result in a loss for the government. The government-owned Trans Mountain Corp. currently has assets of $35.2 billion, liabilities of $26.9 billion, and shareholder equity of $8.3 billion as of December 31, 2023.
The PBO’s valuation estimates indicate that the value of the pipeline will depend on whether the current contracts are renewed after 20 years or if the pipeline reverts to a cost-of-service scenario. Additionally, projections from the Canada Energy Regulator suggest that there could be excess capacity in the pipeline by the early 2040s, depending on climate action initiatives.
The completion of the Trans Mountain expansion has provided a significant boost to the Canadian oil industry, allowing for increased oil production and economic growth. However, the government has expressed its intention to divest from the pipeline and has initiated talks with Indigenous nations along the route for potential equity partnerships.
Despite plans for divestment, Trans Mountain Corp. is facing challenges in a dispute with oil companies over toll charges for using the pipeline. The CER is set to hold a hearing on the tolling dispute next spring, which could impact the potential sale of the pipeline. Critics warn that if oil companies are not held responsible for covering the project’s cost overruns, taxpayers may bear the financial burden.
Overall, the future of the Trans Mountain pipeline remains uncertain as the government navigates through the complexities of divestment and potential losses on the sale. Stay tuned for updates on this evolving situation.
