Resale value of Trans Mountain pipeline expansion will drop by $700M from year of delay: PBO
The resale value of the Trans Mountain pipeline project will drop by close to $700 million if it is completed just one year behind schedule.
According to a new report by the Parliamentary Budget Officer that was released Thursday morning, a one-year delay in completion would reduce the value of the Trans Mountain pipeline expansion project by $693 million, while a spike of 10 per cent in construction costs would lower its value by another $453 million.
Those new findings come amid continued concerns about when stalled construction of the pipeline will resume, and as the Liberal government refuses to set a timeline for when it will complete renewed consultations with Indigenous stakeholders.
“The main risks are construction delays and increased construction costs because the assumptions that we based our report on are … before negative decisions from the court and before the stronger opposition from certain groups,” said Yves Giroux, parliamentary budget officer.
“It’s very likely that construction will be delayed and construction costs will increase and these two factors will probably decrease the value of the pipeline and its expansion by a billion dollars.”
The PBO also noted the government may have paid more than the pipeline is worth when it offered $4.5 billion to buy the existing pipeline and its associated assets, including terminals, from Kinder Morgan last spring.
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But while the report pegged the valuation of the pipeline at between $3.6 billion and $4.6 billion, it also noted that it is possible the analysis didn’t take the full scope of the value of the project into account.
“However, PBO’s valuation does not include related assets that were bought as part of the acquisition, including multiple pipeline terminals and the Puget Sound Pipeline,” the report stated.
“Therefore, PBO’s valuation would be understated relative to the total value of all the assets bought as part of the purchase.”
In May 2018, the Liberals announced they would buy the existing pipeline infrastructure for $4.5 billion — not including any of the costs of actually expanding it.
Expanding the pipeline, as Kinder Morgan had initially proposed doing before abandoning the project, has been forecast to cost roughly $9 billion in addition to the purchase price of the existing pipeline and associated assets.
That meant the total cost to taxpayers would be roughly $14 billion.
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According to the government’s fall economic statement last year, it had raked in roughly $70 million in earnings since officially buying the pipeline on Aug. 31.
The 4.4 per cent return seen so far works out to about $200 million per year in earnings, that fiscal statement said.
However, the Liberals have so far failed to find a buyer for the project, which has been mired in regulatory delays, reviews and protests.
A court order stalled construction work on the pipeline last summer, citing problems with the environmental review process done by the former Conservative government and the round of Indigenous consultation done by the Liberals.
While a new marine impact review by the National Energy Board is set to wrap up on Feb. 22, there is still no date for when the government expects to complete the further round of consultations it launched last year with the 117 Indigenous stakeholders along the pipeline route.
There remains no date in sight for when construction on the pipeline will resume.
On Jan. 24, Natural Resources Minister Amarjeet Sohi told the Canadian Press he has consulted with 40 Indigenous groups so far and would be heading back to British Columbia to hear from more shortly.
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Documents filed by Kinder Morgan last year to the U.S. Security and Exchange Commission, which it did as it prepared to sell the pipeline to the Canadian government, stated that the projected timeline for completion of the project is now December 2021.
The predicted date of completion before that filing had been December 2020.
According to the PBO report, the pipeline will be considered on time if it is completed by December 2021.
Completion one year after that, so by December 2022, would be when the resale value dropped by the predicted $693 million.
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