Construction on the Trans Mountain pipeline expansion. (Trans Mountain)

Feds insist TMX is still viable, despite new $21.4B price tag. Environmental groups disagree

Trans Mountain put out its latest cost estimate late last week, at a total of $21.4 billion—but the federal government says it's still viable.

By Dustin Godfrey | February 22, 2022 |5:00 am

The official estimate for the cost of the Trans Mountain pipeline expansion has increased by 70% from its previous estimate to $21.4 billion, spurring another round of environmental groups calling for its cancellation.

Trans Mountain announced on Friday its new cost estimate, which was up $8.8 billion from the previous estimate in February 2020.

“This estimate includes the costs of all known project enhancements, changes, delays, and financing, including impacts of the COVID-19 pandemic and the substantial preliminary impacts of the November 2021 BC floods in the Hope, Coquihalla, and Fraser Valley areas,” notes a news release from the federal Crown corporation.

Progress over last 2 years ‘remarkable’: CEO

Still, Trans Mountain president Ian Anderson said in a news release that the progress over the last two years, since the previous cost estimate, has been “remarkable when you consider the unforeseen challenges we have faced, including the global pandemic, wildfires, and flooding.”

“At every step of the way, we have found solutions and responded. As a result, the project is advancing with significantly improved safety and environmental management, and with a deep commitment to ensure this project is being built the right way,” reads Anderson’s statement.

The latest cost projection aligns closely with estimates put out by lawyers with West Coast Environmental Law. In September last year, the law firm estimated the cost of the project could approach the $20-billion mark.

And that was before the massive flooding in November, which derailed the project for a month and caused significant damage to infrastructure in BC.

After those floods, WCEL staff lawyer Eugene Kung argued the costs could even approach double the $12.6-billion estimate of February 2020.

“This represents another hand out to the oil and gas sector and will make it harder to sell the project to the private sector operating on a commercial basis.”

Photo: Trans Mountain

Still worth $21.4-billion price tag?

Still, Trans Mountain argued the pipeline project would ultimately be worth it for the Canadian economy, saying federal and provincial governments will reap billions in taxes and royalties through construction and operation of the pipeline.

In particular, Trans Mountain said it will be paying the BC government between $25 million and $50 million annually over 20 years, for a total of $1 billion.

“These funds are to be used by the BC Clean Communities program to fund local environmental projects in the province,” reads Trans Mountain’s news release.

However, the Trans Mountain statement does not say how many billions of dollars will be fed back into the various governments’ coffers by way of royalties and taxes.

The company told Burnaby Beacon in September it didn’t foresee any delays to the projected in-service date of Dec 31 of this year.

But just a few months later—albeit after catastrophic flooding along much of the pipeline’s route—Trans Mountain now says “mechanical completion” of the project is now projected for the third quarter of 2023. That, it’s worth noting, does not mean an in-service date in Q3 2023.

The Crown corporation had also appeared to counter WCEL’s claims of increased construction costs after the law firm had noted the cost of construction at just over the halfway point was already at $10 billion.

Trans Mountain told Burnaby Beacon last December that the $10-billion-to-date price tag reflected “a decision from early in project execution to pre-acquire materials before those were needed in construction and to stockpile those materials.”

However, with the project now upwards of 55% complete, that $10 billion in spending is less than half of the overall estimated cost.

Cause for reconsidering the project

The price tag, Kung argued last year, should give the federal government pause to consider discontinuing the publicly funded project.

In a news release issued last week, WCEL noted the new price tag quadruples the original estimate.

“The new price tag … means that TMX’s already collapsed business case is worse than ever, and the cost will probably increase further,” Kung said.

“We know that the toll structure means that only 25% of the cost overruns will be fully recouped from TMX’s customers—the oil producers. This represents another hand out to the oil and gas sector and will make it harder to sell the project to the private sector operating on a commercial basis.”

The federal government, meanwhile, said last week that it would spend “no additional public money on the project, and that TMC will instead secure the funding necessary to complete the project with third-party financing, either in the public debt markets or with financial institutions.”

The federal government said BMO Capital Markets and TD Securities have agreed public financing “is a feasible option that can be implemented promptly.”

“They also have confirmed that, despite the increased cost estimate and completion timeline, the project remains commercially viable,” reads a news release from the Department of Finance Canada.

“Who in their right minds would lend money to this company when construction costs have exploded to four times the original estimate of $5.4 billion to $21.4 billion today?”

Photo: Trans Mountain

PBO report casts doubt

Opponents of the project, however, disagreed, with the Wilderness Committee pointing to a Parliamentary Budget Office analysis from February 2020.

That analysis, which relied on the previous $12.6-billion estimate, suggested even then that the net value of the pipeline could reach into the negatives.

For instance, the PBO estimated that a one-year delay, which is now looking like a reality, could drop the pipeline from a $600-million net positive value to a $400-million net negative.

In fact, that report offered little hope that the project could be profitable with total construction costs at just shy of $14 billion—let alone $21.4 billion.

“Who in their right minds would lend money to this company when construction costs have exploded to four times the original estimate of $5.4 billion to $21.4 billion today?” said Wilderness Committee climate campaigner Peter McCartney in a news release.

“Trans Mountain is an absolute dumpster fire, and it’s outrageous that it’s been allowed to carry on on the public dime all this time.”

Barriers to gaining investors

Wilderness Committee also noted that a number of financial institutions have net-zero and fossil fuel divestment policies that could be a barrier to gaining investments for the pipeline project.

“Any business case for the pipeline is predicated on the world failing in its efforts to achieve net-zero emissions by mid-century,” the Wilderness Committee noted.

WCEL pointed out that the project’s borrowing from the Canada Development Investment Corporation, the federal government’s investment arm, had increased substantially.

In April last year, Canada Account, which has lent money to Trans Mountain, increased its lending limit for the project to $9.14 billion, up from $6.1 billion.

“The Canada Account is designed to support projects that are too risky for the private sector. This should be a huge red flag for any would-be buyers,” said Kung.

But he added Liberal Party has potentially signalled an understanding of “how fraught TMX’s economics are by lowering expectations from TMX being ‘extremely profitable’ to hoping to recoup public dollars with a ‘potential for positive financial return.’”

“It is outrageous that TMX’s cost has nearly doubled in two years with very little oversight,” said Kung.

“Especially since the so-called economic benefits were used to justify the infringement of Indigenous rights, the significant climate impacts of building oil and gas expansion infrastructure, and the devastating effects on wildlife like salmon and orcas.”

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Dustin Godfrey

Reporter at Burnaby Beacon

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