The Pipeline You Now Own is Losing Money

I recently had a briefing with the Parliamentary Budget Officer’s (PBO) office on their report on the Trans Mountain Pipeline, which the Trudeau Liberals purchased for $4.4 billion.

The PBO reported the value of the pipeline between $3.6 billion and $4.6 billion. This means that the Liberals likely overpaid for the pipeline.

What I found out was that the Liberal government not only got a loan for the $4.4 billion price tag on the existing pipeline and for the "concept" of the proposed expansion, but there was also another $800 million for other costs associated when they nationalized it.

Just so there is no confusion, these billions do not include the construction costs for the proposed expansion.

The best numbers we have is that the construction costs will be another $9.3 billion.

That money will also probably have to be borrowed.

You may be wanting to know why none of this ever came before Parliament to be scrutinized.

The Liberals essentially did an end-around.

They were able to side step this because another Crown Corporation loaned it to their new nationalized pipeline corporation, meaning it didn’t’ need Parliamentary approval.

So no debate. No analysis. No Parliamentary oversight.

While I think it speaks volumes that the Trudeau Liberals had to nationalize a pipeline, we are going to set aside that argument for the time being.

Instinctively, most Canadians probably want to know if the Trudeau Liberals made a good business decision when they bought the pipeline.

After getting over the surprise announcement that the Government of Canada decided to get back in the business of nationalizing the energy sector, it was the first thing that came to mind.

Are we going to get out of this mess without losing money? And will someone inevitably buy it off our hands?

It was a big challenge for the PBO when trying to determine the value of the existing pipeline and the “concept” of the new expansion.


Because no one else wanted to buy it. It wasn’t like there were a bunch of private companies lining up to become the new owner.

The only ones knocking on the door were the Trudeau Liberals.

So the PBO did the best they could have with the information they had. And I know that we all thank them for all that they do.

On a personal note, their office was extremely amenable in making themselves available to talk about their latest report.

Now to the original question, did they make a good business decision? (Setting aside any ideological differences you have with the fact we just nationalized a pipeline.)

Time will tell. Let me tell you why.

The PBO reported that completing the project one year behind schedule will reduce the value of the expansion project by $693 million.

And if construction costs go up by 10%, it would lower its value by $453 million.

At this point in time, there still is no certainty the expansion will ever get built.

If you ask Bill Morneau what the plan is, I can ensure you that not even the most experienced political watcher can decipher what he is saying.

There is still a lot of risk with this expansion project.

Hence why Kinder Morgan wanted to rid themselves of it as fast as they could and why the Trudeau Liberals sent a $4.4 billion dollar cheque to Texas.

The liability was far too great for Kinder Morgan so now all that liability and risk is now resting within the new nationalized pipeline that we all collectively own.

At this time, there is a possibility that if the expansion never happens, the Trudeau Liberals just paid billions for a “concept” to build an expansion.

You can see why Kinder Morgan immediately cashed the cheque on arrival.

Now if we step back and look at the other moving pieces, the British Columbia NDP-Green government survived a close call when they had to fight to keep a reliable NDP seat on Vancouver Island in a recent provincial by-election.

If they would have lost that by-election, it would have upset the balance of power in the BC legislature and the NDP-Green government might have fallen.

By having a new government in British Columbia that wasn’t doing everything they can do stop the expansion, it would have given the expansion greater certainty. Alas, that didn’t happen.

And why is there no construction of the expansion currently going on? Because the Federal Court of Appeal overturned the Trudeau Liberals’ governor-in-council authorization.

While there was hope that it would be resolved to everyone’s satisfaction and construction would start on time, the Liberals just announced another extension.

While all that sorts itself out, let’s get back to the existing pipeline that is in operation.

The new nationalized pipeline Crown Corporation collects tolls from the companies who use the pipeline. That much is certain.

The larger question is, do those revenues cover the costs of operating the pipeline, paying the staff, maintenance

And the interest on all those billions we had to borrow?

That answer is a little more foggy.

From what we were told, because we don’t have a lot of available data just yet, there is a good chance that our new nationalized pipeline Crown Corporation is losing money.

Because they had to take out such a big loan and pay all that interest, plus pay the normal costs of running a Crown Corporation, the tolls on that oil going through the pipeline might not cover the costs.

If the expansion takes forever and we are not collecting the expected tolls from that additional capacity, the new Crown Corporation isn’t profitable.

And if for some reason the expansion never happens, you can only imagine how many billions we just paid for a 66-year-old pipeline and the “concept” to build another.

So there you have it.

We own an existing pipeline that might be losing money.

We own the “concept” of an additional pipeline that could take years to build.

And we all shoulder the risk that this paper pipeline might never get completed.

What do you think are the chances that we ever get back that $4.4 billion the Trudeau Liberals sent to Texas?

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