Ottawa Set to Lose Money on Trans Mountain Purchase as Morneau Accused of Obscuring Costs
Canada’s purchase of the Trans Mountain pipeline from Houston-based Kinder Morgan Ltd. may be costing taxpayers more in interest charges than the highly-touted revenue it receives from existing pipeline operations, according to an exposé last week by National Observer.
Finance Canada contends the payments are just a paper transfer between two branches of the federal government, Observer reports.
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“The interest expenses were $20 million over a single month in September, right after Prime Minister Justin Trudeau’s government purchased the pipeline and related assets from Texas energy company Kinder Morgan for C$4.5 billion,” Observer states. “If the interest expenses continue to pile up at that rate over the year, they will come to represent a larger sum than the amount of money the government has said the pipeline is on track to raise this year, primarily from toll charges.”
That’s on top of the $500-million security deposit against possible environmental damage the federal Crown corporation now responsible for the pipeline has had to put down. Observer says interest on that fund appears to be included in the $20-million monthly expense.
Observer cites a quarterly report from the Canada Development Investment Corporation (CDEV), the Crown corporation now responsible for the pipeline, that lists $21.27 million in related interest expenses between August 31, the date the purchase went through, and September, the end of the financial quarter. That multiplies out to $255.24 million per year, “well above the ‘over $200 million’ that Finance Minister Bill Morneau’s fall fiscal update said the pipeline was on track to make,” Observer notes, in a story that traces the web of government agencies involved in the financing.
Based on the CDEV data, economist and former insurance CEO Robyn Allan said Morneau’s fiscal update was misleading. “This is designed to not address the issue, and suggests that there is no expectation that the interest charges in full or the principal repayment will be made,” she told Observer. “Given what Canadians were told, anything short of full recovery on a commercial basis is a subsidy.”
Jack Aubry, director of media relations and consultations at Finance Canada, responded that “the interest payments are not considered as a loss to the government as they represent money flowing between Crown corporations,” adding that the interest rate was “in alignment with the government’s instruction that TMC be managed on a commercial basis.”
In a separate opinion piece for Observer, Allan writes that the CDEV quarterly report “provides pertinent information exposing Trans Mountain’s financial challenges. Morneau could have readily included this in his fall update, but he chose not to. The picture gleaned from a review of CDEV’s financial statements is in direct contrast to Morneau’s characterization of Trans Mountain’s financial position.”
At the end of a detailed explanation of the financing structures and accounting methods involved, she concludes that “by the time construction commences—which Trudeau hopes will happen by next summer—sunk costs for the project will reach $1.5 billion. Add to that the revised capital costs for construction and it’s not hard to see how project costs could exceed the $9.3 billion estimate” that Kinder Morgan put forward in August. Allan has already cautioned that the final price tag to complete the Trans Mountain expansion could go considerably higher.