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Canada’s Trans Mountain purchase is seeing a return of as much as 4.4%: economist

Finance Minister Bill Morneau told Global News on Wednesday that there are investments for Alberta to help its hurting economy in the fall economic update to allow companies in the region to grow. He also could not give a date for when shovels will be in the ground for the Trans Mountain pipeline.

There were voices claiming that the federal Liberals would add to the deficit when they announced the federal government would buy the Trans Mountain pipeline from Kinder Morgan for $4.5 billion.

Liberal spending plans will, indeed, keep Canada in the red for the foreseeable future, according to numbers released in Wednesday’s Fall Economic Statement.

But that update also shows the federal government pulling in a positive return on the Trans Mountain pipeline, months after they decided to buy it.

Coverage of the Trans Mountain pipeline on Globalnews.ca:

Tucked into the Fall Economic Statement was a section offering details on the $4.5-billion acquisition of the pipeline, which was completed on Aug. 31.

The section showed that entities associated with Trans Mountain have raked in $70 million in earnings before interest, taxes, depreciation and amortization (EBITDA) since the feds bought the project.

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This works out to annualized earnings of $200 million, the statement said.

READ MORE: In fiscal outlook focused on uncertainty, Liberals still offer no plan back to balanced budgets

The return surprised Trevor Tombe, an economics professor at the University of Calgary.

“If you were to imagine depositing $4.5 billion into a savings account that paid 4.4 per cent interest, then you would wind up with about $200 million per year coming out of that account,” he told Global News.

The Fall Economic Statement provided an early look at the cashflows from the pipeline, Tombe said.

And while the numbers surprised him, he thinks they were likely less surprising to the feds, who knew the pipeline was a profitable entity.

“It has, effectively, a guaranteed rate of return” that’s set because toll charges that oil shippers pay to move oil are set in such a way to ensure a rate of return on the asset, Tombe said.

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Nevertheless, the statement is the “first indication that I’ve seen of what the return is on this Government of Canada purchase,” he added.

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In the Fall Economic Statement, the federal government noted that it has never intended to own Trans Mountain entities long term.

Earlier this year, it failed to flip the project to another buyer in the private sector.

READ MORE: Trudeau defends decision to buy Trans Mountain pipeline at Vancouver Island event

But Tombe said there is “almost no uncertainty in my mind” that the pipeline will be sold to a willing buyer.

He said, given the production path that Alberta is on, there’s not a lot of risk on owning an asset that has a “very stable return from one year to the next.”

What’s an open question is how much the pipeline could go for if the federal government flips it to another buyer.

“There’s so many unknowns because we don’t know what the overall construction bill is going to be,” he said.

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How soon it will be before the pipeline is built is yet another question facing the project.

The federal government’s approval of Trans Mountain was shot down by the Federal Court of Appeal in August, overturning it because the National Energy Board’s review was flawed, and because the feds failed to engage in meaningful consultation with First Nations.

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Prime Minister Justin Trudeau has since said that the courts have provided guidance on the best way to ensure the expansion is completed.

“Our focus is on getting that pipeline built the right way so we can finally get our oil resources to markets other than the United States,” he told Global News Radio in September.

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