Workers lay pipe during construction of the Trans Mountain pipeline expansion on farmland, in Abbotsford, B.C., on May 3.DARRYL DYCK/The Canadian Press
Ottawa has backstopped $3-billion more in debt for Crown-owned Trans Mountain Corp.’s delayed and overbudget oil pipeline expansion, but the government maintains its guarantees do not amount to public funding.
According to Export Development Canada’s website, Ottawa is guaranteeing $1.75-billion to $2-billion of financing provided by commercial lenders in a transaction finalized at the beginning of May. That followed a guarantee for $750-million to $1-billion of debt in late March. The guarantees are listed within the Canada Account, which includes transactions that are too risky for EDC under its usual course of business because of risks related to deal size, markets, borrowers and financing conditions.
The government approved the loan guarantees after backstopping another $10-billion in financing last year.
In March, Trans Mountain Corp. reported the estimated costs for its expansion had ballooned to $30.9-billion, an increase of more than 300 per cent from the initial $7.4-billion that former owner Kinder Morgan Canada forecast in 2017.
Even before the latest overrun was disclosed, independent analyses, including one a year ago from the Parliamentary Budget Officer, had shown Ottawa would lose money on the project, which it purchased from Kinder Morgan Canada in 2018 for $4.5-billion.
Finance Minister Chrystia Freeland said in 2022 that Ottawa would not plow any more public money into Trans Mountain, which the government has pledged to sell eventually. She said the corporation would secure the funding necessary to complete the project through third-party financing, either in public debt markets or from financial institutions.
The additional government guarantees mean taxpayers are taking on the risk of default. But they are not footing more of the bill to complete the project, Marie-France Faucher, a spokesperson for Ms. Freeland, said in a statement.
“As confirmed in TMC’s first quarter financial statements, TMC continues to secure the necessary third-party financing to complete the project. As part of this process, the Government of Canada has provided a loan guarantee on behalf of the corporation,” Ms. Faucher said. “This is common practice and does not reflect any new public spending. The company is paying a fee to the government for this loan guarantee.”
Trans Mountain is Canada’s only pipeline system for transporting oil to the West Coast. The first phase was completed in 1953, and the line can currently ship 300,000 barrels of oil a day to Burnaby, B.C., from the Edmonton area. Prime Minister Justin Trudeau’s government bought the pipeline after Kinder Morgan Canada shelved plans for the expansion in the face of stiff opposition and court challenges from environmentalists and some Indigenous groups.
The expansion project, which is due to be completed early next year, will nearly triple the pipeline’s throughput to 890,000 barrels a day. Eighty per cent of the capacity of the expanded pipeline has been allocated to 11 Canadian and international producers and refiners, under 15- and 20-year transport contracts.
Energy companies have said for years they are looking to the expansion of the pipeline to boost the value of their oil production, which has at times suffered deep price discounts compared with other international crude types because of tight export capacity and reliance on the United States as the Canadian oil patch’s only sizable customer.
Years of delays and cost increases have raised concerns about the project’s long-term financial viability. Ms. Faucher said the government plans to start the process of divesting itself from the pipeline “in due course.”
“As assessed by BMO Capital Markets and TD Securities, the project remains commercially viable, and there is strong interest from investors in high quality, operational infrastructure assets like the Trans Mountain Expansion Project,” she said.
Several Indigenous groups have expressed interest in buying the pipeline, including Calgary-based Project Reconciliation; Nesika Services, a group that describes itself as an Indigenous-led not-for-profit; and Chinook Pathways, a partnership between Western Indigenous Pipeline Group and Pembina Pipeline Corp. But some would-be bidders have expressed fatigue after waiting years for a formal process to begin.