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Ottawa Set to Lose Money on Trans Mountain Purchase as Morneau Accused of Obscuring Costs

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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 [2], 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 [3] 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 [4] in August. Allan has already cautioned that the final price tag to complete the Trans Mountain expansion could go considerably higher.

2 Comments (Open | Close)

2 Comments To "Ottawa Set to Lose Money on Trans Mountain Purchase as Morneau Accused of Obscuring Costs"

#1 Comment By Roxanne Stanick On December 16, 2018 @ 7:48 PM

Trudeau’s actions are exactly why Canada needs proportional representation rather than first past the post as voting system. His slim margin is driving Canada into the ground…like Fracking, coal mining, and tar sands bitumen extraction is. We have to immediately curtail an stop our dependence on fossil fuels now. The whole KM expansion should stop and ALL subsidies that are flowing into provincial and Canadian coffers should be used for installing green technology across the country. Trudeau better be the last of the last climate change deniers. He talked a good talk until he got into office. His rapid switch to deeply embedding himself in oil extraction and shipping is not what Canadians voted for. I am sure no one is voting for a tank farm explosion that would kill thousands on Burnaby Mountain, or smoking out the whole side of Burnaby Mountain and 45,000 people who live and work at Simon Fraser University, or killing kids in an elementary school very close to the tank farm…They just don’t want to see these “inconveniences” because they are blinded by the rhetoric that Trudeau and his followers are stating…that bitumen is clean safe fuel and pipelines are the safest way to transport highly toxic, flammable diluted tar. There is practically no discussion about the dangers to the people who live along the pipeline route, especially in the dangerous earthquake zone in the lower mainland, or about the devastation that an earthquake and following explosion of pipelines and tanks would have on Burnaby and the surrounding areas. Tens of thousands of people could be trapped at SFU, suffering toxic smoke inhalation. People will die. Trudeau’s government is ignoring these facts. The loss of income for BC would far outweigh the cost of losses to the pipeline, as would the loss of life. Nothing can replace a smoked out, burnt down, blown up city or a toxic bitumen spill destroying coastal fisheries for generations to come. No matter which way you look at it, the outcome for BC will be devastating.

#2 Comment By Thomas Chan On April 4, 2019 @ 8:45 AM

In conjunction with Roxanne Stanick’s strikingly relevant statement above — and her testimony does not stress this sufficiently — a SINGLE major bitumen tanker spill along B.C.’s critical marine coastline could amount to long-term environmental and economic catastrophe.

Upon a major bitumen tanker spill, eventually sunken, weathered and congealed asphalt-tar, will lie suspended beneath the water surface, and while non-recoverable by current skimming technologies, will be spread by wave action and ocean currents, resulting potentially in thousands of kilometres of contaminated coastal seabed and shoreline where it eventually would be deposited, where it will continue to exude toxins likely for decades or much longer.

The 1989 Exxon Valdez tanker catastrophe involved the spill of an estimated 40.9 million litres of LIGHT CRUDE OIL, eventually impacting over 2,000 kilometres of southern Alaskan shoreline, where much of it still exists today, 30 years later, pooled above rock beds inches below grade. Each of the typically legally-exempt offshore-flagged Aframax tankers servicing the Trans Mountain expansion (TMX) pipeline will contain an average of 119 million litres of DILUTED BITUMEN, a substance much more persistent and difficult to mitigate once spilled than light crude.

Quite simply, it would require only a SINGLE major spill from among the more than 10,000 loaded Aframax tanker transits through the waters of the Salish Sea and the west coast of Vancouver Island over the projected 25 years of the TMX pipeline’s contracted operations to catastrophically decimate the ecological and economic viabilities of the southern B.C. and Washington State coastal marine environments.