OTTAWA — The federal government faces a potential loss on the sale of the Trans Mountain pipeline because it believes its value is lower than its construction cost, the parliamentary budget officer said Friday.

The pipeline could be worth between $29.6 billion and $33.4 billion, depending on what happens after the initial 20-year contracts expire, the budget watchdog said in an updated financial assessment of the controversial project.

At the same time, the cost of constructing the pipeline, which was commissioned in May, amounted to $34.2 billion, significantly higher than the $7.4 billion estimated in 2017.

PBO’s estimate does not take into account sunk costs, such as the $4.5 billion the federal government paid to purchase the project in 2018, nor capital expenditures before 2024.

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

The potential sale will be influenced by the number of potential buyers, the cost of raising capital for them, when and how it will be sold, market conditions at that time, whether it will be a arm’s length transaction and whether the curtain groups will be given priority in the sale, the parliamentary budget officer said.

But he added that if it were sold at the value estimated by the PBO, he would face a loss.

The government company Trans Mountain Corp. had assets of $35.2 billion, liabilities of $26.9 billion and shareholders’ equity of $8.3 billion as of December 31, 2023.

“If the Trans Mountain Pipeline were sold in 2024 at either of the (current values) calculated by PBO, once outstanding debts have been repaid, the amount remaining would be less than the shareholder’s equity. TMC should write off the equity balance and record a loss.

For its valuation estimates, PBO said the highest valuation would be if current contracts were renewed after two decades, while the lowest range would be if the pipeline returned to a cost-of-service scenario.

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 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.

The Canadian Press