The projected cost of the Trans Mountain pipeline twinning has nearly tripled due to natural disasters, environmental protection measures and mounting debt, the government pipeline company said.
The latest figures show that TMX’s initial price tag of $7.4 billion — projected when the federal government bought the project in 2018 — has since risen to $21.4 billion.
The Federal Treasury Department updated those numbers in February at a press conference on Friday — which was held on a day when the media was distracted by Ottawa police who began mounting a deep-seated protest in a convoy-convoy mandate on Parliament Hill. clearing.
†[The federal government has] did a terrible job communicating how costs are increasing and [by] keeping things secret that don’t need to be kept secret,” said Blair King, an environmental scientist who argues that TMX is in the public interest. a blog that occasionally debunks myths about the project.
More details emerged in the weeks following that press conference. Documents posted online – business plans, revenue reports, and a recent project update – indicate where costs have increased and when TMX expects to start monetizing.
Why the higher costs and delays?
Trans Mountain has experienced cost increases before. For February, the most recent project cost estimate was $12.6 billion.
Trans Mountain blames the latest cost overruns and delays on “schedule pressure” and “productivity challenges.” According to a recent project update posted onlinethose issues account for $4.3 billion of the new cost increases.
The thousands of permits from city, state and federal governments that TMX needs have taken longer than expected to obtain, the company said.
The landscape of the construction area has also changed drastically since the start of the project. In November, floods hit Hope, Coquihalla and Fraser Valley construction segments in BC changed business planTrans Mountain said the flood alone would add $500 million to the final price tag.
Contractors also share some of the blame, Trans Mountain said.
“The labor productivity of some contractors did not perform at the level previously estimated,” it said. “This can be attributed to the availability of experienced workers, inefficient start-ups due to permit delays and in some cases unforeseen ground and geotechnical conditions.”
Trans Mountain may also have to compensate a contractor it severed ties with after a fatal accident at the workplace. In 2020, equipment beat and killed an employee working at SA Energy. The former contractor is “entitled to reimbursement” of costs before his contract was terminated, according to to a quarterly earnings report of the Canada Development Investment Corporation, the Crown Corporation that owns Trans Mountain.
Protect ants, frogs, fish and snakes
The need to protect culturally and environmentally sensitive areas added $2.8 billion to the cost of the project, Trans Mountain said.
The company said more funding is needed to add “state-of-the-art leak detection” equipment and route the pipeline away from an aquifer in BC’s Coldwater Valley. It also said its crews have gone to great lengths to protect rare species in the construction zone — removing rare moss by hand and moving 100 anthills, 150,000 frogs and several fish, snails and snakes.
“These unplanned efforts,” Trans Mountain said, have added $50 million to the project.
The pandemic is also increasing project costs. Trans Mountain said the cost of COVID testing, personal protective equipment (PPE), changes to labor camps and other health and safety measures added to the financial burden. It counts now more than 3,000 cases of COVID-19 among its 13,500 employees.
Trans Mountain’s president and CEO, Ian Anderson, declined to be interviewed. He has said in the past that he hopes the project will leave a positive legacy for local communities, especially indigenous communities along the pipeline route. Trans Mountain has signed mutual benefit agreements with nearly 70 First Nations.
These agreements include money for education, job training, skills enhancement, business opportunities and improved community infrastructure. Trans Mountain estimates it spends more than $580 million on these agreements — $200 million more than the previous estimate.
The company said it also needs $1.7 billion to finance the debt it has built up along the way.
Who pays for the cost overruns?
When recalculating the new construction costs, Trans Mountain assumed in its amended business plan that “100% financing” would come from the government. But in February, Treasury Secretary Chrystia Freeland said the federal government would stop funding the pipeline.
“I want to assure Canadians that no additional government money will be invested in (Trans Mountain),” Freeland said.
“(Trans Mountain) will provide the necessary funding to complete the project through third party financing, either in government debt markets or from financial institutions.”
But as long as taxpayers own Trans Mountain, they’re stuck on anything the company borrows. Trans Mountain has confirmed that only 20 to 25 percent of TMX’s total cost increases would be passed on to shippers through pipeline tolls.
Is the project still commercially viable?
An expert says no.
“Trans Mountain’s expansion is not commercially viable. It will not return to Canadians as if it were a good investment,” said Robyn Allan, an independent economist and former president and CEO of the Insurance Corporation of British Columbia. “This is a huge tax burden that we face.”
Allan has been researching TMX for years and has spoken at several regulatory hearings. Since Trans Mountain has said it will pass on only 20 to 25 percent of the cost increases to its customers, she said the project is likely to deliver a negative return on taxpayers’ investment over its lifetime.
The government, meanwhile, insists that Trans Mountain remain commercially viable. Freeland said in February that the government has studies from two major banks — BMO Capital Markets and TD Securities — showing the project will bring in money. When News asked for copies of these documents on Wednesday, the Treasury Department said no.
“Business owners have a right to know that information,” Allan said. “And if Canadians can’t see that information, Canadians shouldn’t believe it.”
Trans Mountain also states that once the twinned TMX oil begins to move, revenues will be “substantial” enough to repay loans. Once in operation, the pipeline is expected to generate more than $1.7 billion per year, supported by shipper contracts over 15 to 20 years.
But that revenue forecast depends heavily on Trans Mountain’s ability to avoid further delays and cost increases.
“Continuous and uninterrupted execution of (the Trans Mountain expansion) is required to minimize costs and protect project returns and the economy for Canada,” Trans Mountain said in its amended business plan.
Blair King – an environmental scientist and chemist who argues TMX is in the national interest – said he doesn’t believe a negative return on investment would justify scrapping the project. He said Canadians should remember that the twinned TMX will increase tax revenues, government royalties and GDP, while the oil price difference and the amount of oil transported by rail.
“As someone who is concerned with human and environmental risk, that’s very important to me, not having oil trains through my communities and reducing greenhouse gas emissions,” King said. “Those are damn important.”
When will it be ready?
Under the amended business plan, construction is to be completed by June 30, 2023, nine months behind the revised schedule. The pipeline should be ready by September 30, 2022.
The pipeline will not begin transporting oil until the Canadian Energy Regulator gives its final approval to operate. Trans Mountain said the pipeline won’t see its first earnings until September 30, 2023.
By February, the project was nearly 50 percent complete. When completed, it will increase the pipeline’s output from about 300,000 to 890,000 barrels per day.