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New Report Projects Federal Government Will Forgive $17 Billion of Trans Mountain’s Debt to Canadians

Thursday, October 6, 2022

Vancouver, BC, Musqueam, Squamish and Tsleil-Waututh Territories – West Coast Environmental Law released a new report today that shows how Ottawa’s lack of transparency, unusual corporate structure, and accounting wizardry is creating the illusion that Trans Mountain is commercially viable.

The report shows how public financial support continues to flow to Trans Mountain, despite Finance Minister Freeland’s promise of “no additional public money” for the pipeline. The report projects the federal government will forgive $17 billion in debt Trans Mountain owes to Canadians.

“This report is critical due diligence for Canadians, the owners of the Trans Mountain pipeline, who should have the full picture of their financial burden,” said Eugene Kung, staff lawyer at West Coast Environmental Law, who has been monitoring Trans Mountain’s economic case since 2013. “Since Canada purchased the pipeline company in 2018, there has been a lack of financial transparency and accountability, compared to when Kinder Morgan was the owner,” added Kung.

Because of the lack of transparency and piecemeal financial information buried within multiple government publications, West Coast commissioned public finance expert Robyn Allan, an independent economist and former president of ICBC, to conduct a financial and economic analysis with what information is available. 

The report follows the money Canadians have loaned Trans Mountain since 2018 and finds that the amount of debt Trans Mountain owes taxpayers will continue to grow to at least $17 billion by the end of 2023. The report also examines the implications of Trans Mountain’s new $10 billion credit facility with a syndicate of Canadian banks. Given the toll agreements Trans Mountain has with oil producers, revenues received will be insufficient to cover the entire repayment of the $27 billion Trans Mountain owes.

“The toll regime that comes in when the expansion project begins operation is Trans Mountain’s Achilles heel,” said economist Robyn Allan. “While Trans Mountain’s capital cost has increased to $21.4 billion, the tolls shippers will pay have not kept pace. When the entirety of Trans Mountain’s debt commitments is considered along with the revenue constraints written into the long-term contracts with oil product shippers, we find the $17 billion in debt owed Canadians cannot be repaid.”

Other findings include:

  • How Ottawa obscures Trans Mountain’s financial position and unnecessarily complicates its reporting. Much of Trans Mountain’s losses are hidden in Trans Mountain’s parent company, TMP Finance, but this company’s financial statements are not publicly available. 
  • Publicly available financial statements for Trans Mountain Corporation (TMC) obfuscate  Trans Mountain’s financial reality by relying on US accounting standards and a contrived financing arrangement where almost half of the debt incurred does not bear interest since, although it is debt, it has been given to TMC as equity.
  • Financial support for Trans Mountain continues to mount despite promises that no more public money would be provided. Between June 30, 2022 and December 31, 2023, approximately $1.2 billion in additional public financial support will be booked as interest in kind and added to TMP Finance’s existing $15.8 billion debt load.
  • Ottawa withheld information from Canadians for years about the Trans Mountain expansion’s escalating capital costs.
  • Various flawed discounted cash flow (DCF) analyses reinforce the illusion of commercial viability because they exclude the payment of interest or debt repayment.
  • Finance Minister Freeland’s claim that the Trans Mountain Expansion remains commercially viable relies on TD Securities and BMO Capital Markets’ analyses that stretched the time horizon for project returns from 20 years to 100 years. This indicates that the debt owed to Canadians is not expected to be repaid.
  • Ottawa has set the stage to forgive $17 billion in debt owed to Canadians.

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The full report is available for download here.

For more information, please contact:

Robyn Allan: 604-962-4160, robyn@robynallan.com

Eugene Kung: 604-601-2514, ekung@wcel.org