Taxpayers stand to lose billions of dollars from the sale of the Trans Mountain pipeline because the Parliamentary Budget Officer estimates its current value is less than the sum of its assets.

The pipeline could be worth between $29.6 billion and $33.4 billion, depending on several assumptions, including what happens after the initial 20-year contracts expire, the budget watchdog said Friday.

Meanwhile, the pipeline’s total assets stood at $35.2 billion, liabilities at $26.9 billion, and shareholders’ equity at $8.3 billion as of December 31, 2023.

If the pipeline were sold at the values ​​estimated by the PBO, the proceeds from the sale would be less than the government’s stake in the project.

“Once the outstanding debts are paid off, the remaining amount would be less than the shareholder’s equity. (Trans Mountain Corp.) would have to write off the equity balance and record a loss,” PBO analyst Jason Stanton said in the report.

The deficit, between $1.8 billion and $5.6 billion, is actually based on a best-case scenario, said Tom Gunton, a professor of resource and environmental management at Simon Fraser University.

“Even in the most optimistic scenario, the conclusion is that the government will not recoup its investment.”

PBO’s estimates assume the pipeline is operating at full capacity, which is not a given, and also uses a lower discount rate than buyers, Gunton said.

Under a less favorable outlook, including assuming only 80 percent of the contracted pipeline is used and a higher discount rate, losses could reach $15.2 billion in PBO’s model, he said. declared.

The higher potential losses match Gunton’s own estimates released in September.

In a report for the International Institute for Sustainable Development, he estimated the loss would be between $8.7 billion and $18.8 billion, based on “the most realistic and likely assumptions.”

“So, at the end of the day: a significant, significant loss for the taxpayer.”

Earlier this week, at a parliamentary committee meeting, Finance Minister Chrystia Freeland said she was “very confident that Canadians will get a good deal” on the pipeline, and confirmed that she intended cover all public expenses related to the project.

The PBO said whether the government makes a profit or incurs a loss depends on what someone is willing to pay for it, highlighting the many variables at play.

The potential sale price will be influenced by the number of potential buyers, the cost of raising capital for them, when and how they will be sold, market conditions at that time, whether it will be ‘an arm’s length transaction and whether certain groups will do it. be prioritized in sales, he said.

As for the difference in PBO’s overall value figures, the $29.2 billion is based on the pipeline moving to a cost-of-service model after the first 20 years, while the $33.4 billion of dollars are based on the renewal of current contracts.

PBO notes that scenarios presented by the Canada Energy Regulator show there could be considerable unused capacity in the pipeline by the early 2040s, depending on climate actions taken in the meantime.

The Trans Mountain pipeline opened in May at a cost of $34.2 billion, significantly higher than the $7.4 billion estimated in 2017.

The pipeline transports crude oil from Alberta to the coast of British Columbia. Its expansion tripled the capacity of the existing pipeline, adding an additional 590,000 barrels per day of shipping capacity, bringing the pipeline’s total capacity to 890,000 barrels per day.

The Trans Mountain expansion has ended, for now, the transportation bottlenecks that for years limited the Canadian oil industry’s ability to grow. With the new ability to ship barrels out of the oil-producing region of Western Canada, companies were able to turn on the taps.

Now that the project is complete, Canadian oil production is breaking records, and economists say Trans Mountain will increase the GDP of the province of Alberta and Canada as a whole this year.

The federal government has said it does not want long-term ownership of the pipeline and has already launched the first of what is expected to be a two-phase divestment process.

The first phase includes discussions with more than 120 Indigenous nations along the Trans Mountain Highway to see if any are interested in an equity stake.

The second phase, the timetable for which is not clear, will concern the examination of commercial offers.

However, any potential sale is complicated by the fact that Trans Mountain Corp. is still locked in a dispute with oil companies over the tolls it wants to charge for using the pipeline.

Trans Mountain is considering charging higher tolls to offset some of the project’s budget overruns, but oil companies don’t want to be held responsible for construction challenges.

The Canada Energy Regulator is expected to hold an oral hearing into the tolls dispute next spring. Critics say that if the CER determines that the oil industry should not have to pay most of the government-owned pipeline project’s cost overruns, then taxpayers will be left behind.

— With files from Amanda Stephenson in Calgary.

This report by The Canadian Press was first published November 8, 2024.

Ian Bickis, The Canadian Press