(Ottawa) The Trans Mountain pipeline would be sold at a loss if the government tried to get rid of it today. The Parliamentary Budget Officer (PBO) came to this conclusion after recalculating the current value of the pipeline network which came into operation on 1is May.
Updated yesterday at 4:22 p.m.
“It is expected that it will not cover the funds that have been invested to date, less depreciation, so it is expected that the sale would probably be at a loss to the government although we cannot know with certainty the price that someone “One will be willing to pay as long as it is not sold,” explained the PBO, Yves Giroux, in an interview.
The value of Trans Mountain is estimated at $33.4 billion or $29.6 billion, depending on the two scenarios analyzed by the PBO. In both cases, they include anticipated cash flows through 2063.
The first scenario assumes that contracts concluded with shippers for the first 15 to 20 years of operation of the pipeline would be renewed. If that were the case, Trans Mountain would be worth $33.4 billion.
In the case of “considerable unused pipeline capacity” starting in 2040 due to the energy transition, oil producers may not be required to sign contracts spanning decades.
The second scenario takes this into account. It is based on the assumption that contracts would not be renewed and that shippers would instead have to pay a daily or weekly rate to use the pipeline to transport their crude oil from Alberta to the terminal from Burnaby, British Columbia. In such a case, the value of Trans Mountain would decrease to $29.6 billion.
In both scenarios, the current value of the pipeline is below the value of its assets, notes the PBO.
Trans Mountain would therefore be sold at a loss if the government decided to sell it in 2024, since “after repayment of overdue liabilities, the remaining amount would be less than the shareholder’s equity”.
Trans Mountain has assets of $35.2 billion, liabilities of $26.9 billion and shareholders’ equity of $8.3 billion. These 8.3 billion would still go back into the government’s pockets since it owns the pipeline and the shareholders are government companies.
“Not in the pocket”
The PBO’s conclusion contrasts with comments made Monday by Finance Minister Chrystia Freeland. She suggested that the federal government could pocket more than the $34 billion the pipeline cost when it gets rid of it.
“We’re going to get our money back because we don’t intend to own the pipeline in the long term,” she said.
“It shows that it’s not in the pocket,” said Mr. Giroux. It is always possible that the government will sell at a higher price than what we estimate to be the future value of the cash flows, but the figures so far suggest that the government will probably not regain the full amount. his stake when he sells the pipeline. »
The DPB, however, brings some nuances to its analysis since the sale value will depend on several factors such as “the number of potential buyers, their cost to raise the required capital, the moment and the way in which it will be sold, the market conditions at the time of sale.
Expansion project
The government has not yet launched “the divestment process,” said Minister Freeland’s press secretary, Katherine Cuplinskas.
“The Trans Mountain expansion project will allow Canada to receive a fair market value for our resources while respecting the highest environmental standards,” she said in writing. Additionally, it is a significant investment in the Canadian economy that generates significant operating revenues and creates well-paying middle-class jobs. The Bank of Canada estimates that it will contribute up to 0.25% to Canada’s GDP. »
The Trudeau government made the controversial decision in 2018 to purchase the Trans Mountain pipeline for $4.5 billion. The former owner, Kinder Morgan Canada, then threatened to abandon the pipeline expansion project due to environmental opposition.
The 1,180 kilometer pipeline network is the only one in the country transporting crude oil to the West Coast. It transports approximately 890,000 barrels of petroleum products each day from Alberta to British Columbia.
With Joël-Denis Bellavance, The Press and The Canadian Press
