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Trans Mountain Pipeline financials suggest taxpayer dollars at risk

November 01, 2019
Tom Sanzillo and Kathy Hipple
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Key Findings

The Canadian government has yet to report fully on the level of tax dollars being put at risk.

TMC will likely continue to run deficits and require additional third party coverage of losses.

Executive Summary

For the period January 1, 2019 through June 30, 2019, the Canadian government, its subsidiaries and the Alberta provincial government provided direct and indirect subsidies to the Trans Mountain Corporation of $320 million. The subsidies covered operational deficits and the costs of financing a $5 billion investment made by the Canadian government for the project.

 Direct and Indirect Subsidies

The Trans Mountain Corporation (TMC), the operations company that runs the existing pipeline and is developing its expansion, is operating at a loss. The subsidy to TMC to cover its losses came from the earnings of the Canada Hibernia Holding Corporation (CHHC), a Crown corporation that manages federal oil and gas assets in Newfoundland and Labrador, and tax benefits provided by the Alberta government.

Operating and financing costs for the Trans Mountain pipeline will exceed revenues in the future. CHHC is likely to be a continued source of operational subsidies, but is unlikely to produce sufficient revenues to also subsidize the project’s growing interest charges, as additional loans are needed to finance the pipeline’s expansion.

The source of future subsidies to cover operating deficits and debt service is unspecified. This places Canada’s principal economic development agencies under significant stress. The financial arrangement puts the Canada Development Investment Corporation (CDEV) at risk of running deficits at least through the life of the Trans Mountain pipeline project. Deficits at CDEV are unprecedented. The Canadian government has also utilized the Canada Account to provide resources to the project, which means that Ottawa is borrowing to meet the project’s growing financial requirements. IEEFA expects that the Trans Mountain Corporation project will add significant increased risk to the Canada Account’s portfolio.

IEEFA’s analysis of recent financial disclosures indicates that deficits for TMC and the economic development agencies will continue into the foreseeable future and will contribute to the aggregate cost of the project to the Canadian government.

Press release: IEEFA: Trans Mountain (TMX) pipeline ($17 billion+) will require even more Canadian taxpayer dollars to prop up

Please view full report PDF for references and sources.

Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures.

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Kathy Hipple

Former IEEFA Financial Analyst Kathy Hipple is a founding partner of Noosphere Marketing and the finance professor at Bard’s MBA for Sustainability.

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