TMX – The white elephant pipeline

On June 22, the Parliamentary Budget Office (PBO) released an update on the TMX pipeline and its financial prospects. No surprise to even a casual observer, the 2018 decision to buy the Kinder Morgan Trans Mountain expansion project “will result in a net loss to the federal government.

So much for Prime Minister Justin Trudeau’s absurd claim that TMX profits will finance the transition to a green economy.

The PBO analysis, however, did not include recent financial information. In response to my written questions on the Order Paper, the government claims the project is “significantly de-risked.

No idea what they think that means. Obviously not de-risked in any sense of actual risk. Not climate risk. Not dilbit spill risk. Not risk that future climate events along the TMX route will once again, as happened in November, threaten the stability of the pipeline itself.

The flooding was along the pipeline route in B.C., shutting down the existing Trans Mountain pipeline. Infrastructure was destroyed by the atmospheric rivers in the very place they plan to continue construction.

Not even financial risk. The answers confirm that — after Finance Minister Chrystia Freeland promised in February there would be no further federal financial support for the pipeline, the government is providing an additional $10-billion loan guarantee. The reply says, “it (the loan guarantee) does not reflect any new public spending.”

I asked brilliant B.C. economist Robyn Allan about this claim. In an emailed response, she told me, “Minister Freeland promised that the government will spend no additional public money on the Trans Mountain expansion project. This commitment does not square with reality. The government faces ongoing interest costs on $14.6 billion in debt incurred by Trans Mountain Pipeline Finance (TMP Finance) for Trans Mountain. This means that $700 million a year in interest will continue to be charged but is not being paid because it is accounted for as ‘interest in kind’ and added to the loan balance. Interest in kind represents ongoing public financing.

“According to Canada Investment Development Corporation’s (CDEV) financial projections, by the end of this year, the debt burden to Canadians will have risen from $14.7 billion to $15.4 billion and by the end of 2023, the burden will reach $16.1 billion.”

In another answer, the government claims that BMO and TD have reviewed the project and find it “financially sound and commercially viable.” But do not expect to be able to review these claims: “These analyses are subject to commercial confidentiality.”

But previous TD reviews of TMX were made public.

Opinion: TMX was always a financial loser. That’s why Kinder Morgan bailed. But now it is more than a financial basket case, writes @ElizabethMay. #CdnPoli #ActOnClimate #climate #energy #ClimateChange #emissions

West Coast Environmental Law’s Eugene Kung, to whom we owe much, looked at these replies and emailed me:

“TD Securities did a fairness opinion around the 2018 purchase… Based on the 2018 analysis, a 10 per cent increase in project cost and one-year delay results in a decline in project net present value of 33 per cent. Based on TD Securities’ analysis, the expansion project ceased to be viable when project costs exceeded ~$11 billion. With a project cost of $21.4 billion and further delay, TD Securities’ 2018 analysis suggests a negative value for the project of $7 [billion to] $10 billion. So what changed between 2018 and 2022 to dramatically change [the] TD analysis?”

On June 16, I distilled the information into a 35-second question.

I asked, “Previous TD reports on TMX were public. Why hide them now? Is it entirely likely the government plans to write off financial risks and debt and leave us financially exposed? If it is so commercially viable, why can we not see the reports?”

The PBO managed without access to the TD and BMO reports to verify one key assumption — the pipeline was presumed to have a 100-year lifetime. PBO viewed this assumption as unsupportable, leading to its own conclusion that it was a financial loser for the people of Canada.

But let’s look at the second part of the PBO report. It finds that shutting down construction now would result in “writing off $14 billion in assets” and that the Crown corporation, Trans Mountain Corporation, would “no longer be a going concern.”

Here is a practical proposal. Take a page from Seth Klein’s book The Good War and convert the assets of the TMX pipeline project to a Crown corporation focused on adaptation and resilience.

The thousands of workers and millions of dollars in heavy equipment should be redirected to protecting critical infrastructure, creating fire breaks and generally doing the heavy lifting that could save lives before the next round of disasters of fires, floods and heat domes. Engage First Nations in this critical work.

TMX was always a financial loser. That’s why Kinder Morgan bailed. But now it is more than a financial basket case; as the climate emergency worsens, it is a climate killer. It is a clear and present danger. Shut down the pipeline expansion and convert its Crown corporation into a climate adaptation and emergency response agency. In one fell swoop, convert a white elephant into a workhorse.