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Feds paid near top dollar for Trans Mountain pipeline, spending watchdog says

OTTAWA — If the Trans Mountain pipeline expansion does not go ahead as planned and on budget, the $4.4 billion that government paid to buy the pipeline project will have been too much, says Parliament's budget watchdog.
A aerial view of Kinder Morgan's Trans Mountain marine terminal, in Burnaby, B.C., is shown on Tuesday, May 29, 2018. Canada's Parliamentary budget watchdog says government paid "sticker price" for the Trans Mountain pipeline project when it purchased the pipeline from Kinder Morgan for $4.5 billion. THE CANADIAN PRESS Jonathan Hayward

OTTAWA — If the Trans Mountain pipeline expansion does not go ahead as planned and on budget, the $4.4 billion that government paid to buy the pipeline project will have been too much, says Parliament's budget watchdog.

Yves Giroux, the parliamentary budget officer, on Thursday presented an analysis of the overall value of the oil pipeline, which the government purchased from the Texas oil company Kinder Morgan last August.

Parliamentary budget officer Yves Giroux estimates the Trans Mountain pipeline and a planned expansion project are worth between $3.6 billion and $4.6 billion, which means taxpayers paid close to the high end of the project's calculated value.

"If it was a car, we would say they paid sticker price, they didn't negotiate very much, they didn't get that many deals or manufacturer's rebates — quite the opposite," Giroux told reporters Thursday.

Expanding the pipeline's capacity will come at a cost of $9.3 billion if the project is completed on schedule by Dec. 31, 2021, the PBO estimates.

But should the project encounter any construction delays or cost increases, Giroux says, "then it's quite clear to us that the government would have overpaid" for the pipeline.

The federal government bought the pipeline from Kinder Morgan in August after political opposition to expanding the existing pipeline between Alberta and the B.C. coast gave the company and its investors cold feet. The government announced the purchase price as $4.5 billion but Giroux reported that after final adjustments, the net payment to Kinder Morgan was $4.4 billion.

Finance Minister Bill Morneau contends, however, the final cost to taxpayers was actually $4.1 billion, after a $325-million capital-gains tax payment — and therefore falls in the middle of the PBO's valuation of the project.

Morneau also contends the government engaged in "significant negotiations" to get the best deal. He defended the pipeline purchase as "a good economic decision."

"We can see the significant commercial advantage in the purchase, but also the big advantage for Canadians allowing us to get our resources to international markets, not just the United States, where 99 per cent of our oil is going right now. That's going to be a big economic advantage for Canada," Morneau said.

The Federal Court of Appeal struck down Ottawa's approval of the project in a ruling delivered on Aug. 30, saying Canada failed to meaningfully consult with First Nations along the pipeline route and that the National Energy Board failed to examine how the project would affect marine life. The project is now in limbo.

Given that the 2021 completion date was set before the court ruling was delivered, Giroux says he believes the expansion is likely to face delays and, in turn, financial losses.

A one-year delay in the project would reduce its value by $700 million. A 10-per-cent increase in construction costs would reduce the value by $450 million.

"All indicators point that there will likely be a delayed construction. And construction costs — I think it's also quite possible they will increase," Giroux said.

Morneau would only say it's too early to know whether the 2021 timeline will be met, as work is ongoing to consult with Indigenous groups.

NDP MP Nathan Cullen says he is frustrated the purchase was "rushed," which he believes means Canadians taxpayers ended up with a bad deal.

"It feels to me like they got boxed in and they went and played Texas hold 'em with a Texas oil company and lost, big time," Cullen said.

Conservative infrastructure critic MP Matt Jeneroux said he was discouraged to learn that the Trudeau government could have paid up to $1 billion less.

The analysis did note the project could have positive impacts on the country's economy and on oil prices if the expansion is completed on time and on budget. It would allow Canadian producers to sell more oil to export markets, which would reduce the discount currently imposed on Canadian crude. This could translate to a $6-billion annual boost to gross domestic product (GDP) over the next five years and create up to 7,900 jobs during construction.

But the fact the government was the only buyer for this project is a warning sign.

"From a financial perspective, the risks are significant for taxpayers, but should this get built, it will be a relief for the oil sector in Alberta because it will accelerate the opening of markets for Canadian oil," Giroux said.

If the pipeline expansion does not go ahead, the value of the project would drop significantly, and cause the government to lose upwards of $2.5 billion, Giroux added, calling this the worst-case scenario.

The National Energy Board is set to release a report by Feb. 22 on Trans Mountain's impacts on marine life on the West Coast.

— Follow @ReporterTeresa on Twitter.