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The federal government is once again putting taxpayer dollars on the line to prop up the Trans Mountain pipeline expansion (TMX).
This week it came to light that the federal government approved two loan guarantees (one on March 24 and one on May 2) backing the additional $3 billion Canada’s biggest big banks recently loaned the Crown corporation.
This is a repeat of last year, when those same big banks agreed to loan Trans Mountain $10 billion to cover ballooning construction costs. The federal government greenlit a loan guarantee for the same amount — which means if Trans Mountain can’t repay the banks, Canadian taxpayers will foot the bill. So far, the public loan guarantees on the project total $13 billion.
This likely won’t be the last time we see Canada’s big banks finance TMX and the federal government backstop the banks’ loans with public dollars, said Keith Stewart, senior energy strategist at Greenpeace.
“They still don’t have enough money to finish it, even with this new money, so it will definitely happen again,” said Stewart in a written statement to Canada’s National Observer. In March, Trans Mountain reported construction of the project “is close to 80 per cent complete,” and the company expects the pipeline to be operational in the first quarter of 2024.
Finance Canada did not immediately respond to a request for comment. Finance Minister Chrystia Freeland said in February 2022 that no new public funds would flow to the project, and while this is technically true for now, if Trans Mountain is unable to repay the banks, the loan guarantees will kick in and taxpayers will be left holding the bag.
“The Ministry of Finance is engaging in semantics when they say a loan guarantee isn’t new public money,” said Stewart. “The costs have quadrupled while the amount oil companies will pay to use it is capped, so it will get sold for a multi-billion dollar loss and the public that guaranteed the loans will be on the hook.”
Even before Politico broke the news of the new $3-billion loan guarantee, Freeland was catching some heat from Bloc Québécois MP Monique Pauzé and Green Party Leader Elizabeth May on May 29 in the House of Commons during debate.
“The Prime Minister said that Trans Mountain's profits would be invested in the fight against climate change,” said Pauzé, referencing a promise made in 2019 shortly after the federal government bought the pipeline.
“That is like asking a firefighter to light a fire to justify his job.”
Pauzé demanded to know how the government is justifying TMX “now that it is clear to everyone that it will not be making any profits?”
In response, Freeland cited the importance of economic independence from the U.S.
“It is important that Canada have control over its own resources,” said Freeland. “That will not happen without Trans Mountain,” she said, adding: “We are hopeful that there will be a lot of interest on the investor side.”
So far, only Canadian banks appear willing to finance the project, and only as long as they have the assurance of a public loan guarantee.
When the federal government bought the Trans Mountain expansion project from Kinder Morgan in 2018, the estimated cost to complete the project was $7.4 billion. Today, the price tag sits at $30.9 billion. Parliamentary Budget Officer Yves Giroux told Canada’s National Observer the secret reports Finance Canada uses to claim TMX is commercially viable are based on an unrealistic 100-year lifetime for the pipeline. His previous reports have found the project is no longer a profitable investment.
May challenged Freeland’s assertion that no new public money has been spent on the project, pointing to the fact that Trans Mountain’s debt incurs $700 million in interest each year, as independent economist Robyn Allan has pointed out.
“I had no inkling that once again we are putting public money behind this climate-killing pipeline,” May told Canada’s National Observer in an emailed statement after hearing about the new loan guarantee. “This is outrageous,” she said, calling the project “a pure loser for Canada economically” and noting threats to both the Salish Sea and Indigenous rights.
During Freeland and May’s exchange on May 29, Freeland said TMX “will bring economic benefit to Canada, not the least of which will be to Indigenous Peoples.” As of March 2023, Trans Mountain Corporation “has signed agreements with 81 Indigenous communities worth over $657 million,” and the government is working “with Indigenous communities on further economic participation in Trans Mountain,” according to Finance Canada.
“TMX is like a renovation-from-hell where you end up losing the house and your marriage,” said Stewart.
NDP MP Laurel Collins did not respond to an immediate request for comment.
Conservative environment critic Gérard Deltell declined to comment.
Natasha Bulowski / Local Journalism Initiative / Canada’s National Observer
Comments
I have no idea why Trudeau doesn't complain about this thing all the time. Keep the oil industry on a back foot, explaining why they can't cost a project, can't be relied upon to give accurate figures, why should we trust their estimates for future sales, etc etc etc.
I can imagine that he doesn't want to highlight that he bought into a bad deal, but nobody on the left is going to forget it, and everybody on the right wants to forget it - it's the one Trudeau mistake they'll never mention, because it involves saying that betting on fossil is foolish. So he should "mea culpa" about the bad deal, openly regret that Alberta talked him into it, and repeatedly ask Smith if she'll make up the money that Canada is losing on "her pipeline".
But he's too yella to get into that kind of fight.
It was obvious from the beginning that TMX would not be a big money maker; if it had been, Kinder Morgan would not have sold it. But how do you value the political capital that it is safeguarding in Alberta?
The other point is that, even if it will be a money loser, it will not be a total loss; it will be able to payback some of the money that was borrowed and the bag that Canada will be left holding will not be the complete amount. A king of equalization transfer!
In purely economical terms, it should be scrapped, but when all aspects are considered, it may not be so bad.
How is it that the climate impact of the TMX project always gets trumped by apparent economic benefits? The best available climate science calls for an immediate embargo on all new fossil fuel infrastructure projects and dramatic emission cuts if we are to have even a 50/50 chance of avoiding runaway climate disruption.
We are in a climate emergency and we need to start acting like it. Wake up and smell the burning forests!
This is a joke! What were the Liberals thinking for getting involved with something that isn't going to make money and cost so much. Just think if this money was put to better use like healthcare, education and climate change.
The loan guarantee is worthless and a bottomless pit. The real losers will be Canadians when it all defaults.
The loan guarantee *is* what will make Canadians losers for generations to come. Insurers have to get court orders to keep their identities secret. Banks are laughing all the way to ... the bank: practically in perpetuity.
The other thing is that Canadian pensions, including CPP, are way too invested, and if/when there's a requirement to publish their assessments of risk vis a vis climate change measures, they'll have to boot it on out to beat the fleeing crowd.
The pipeline's clearly going to present a major-major-MAJOR loss. Trudeau should offer it to the Alberta government at cost, with the proviso that Alberta take over the loan guarantee.
It seems the government can "disappoint" everyone else it's made promises to, but not Oil or Pipelines. And the banks and insurance companies.
Andrew Willis at the Globe and Mail has a different perspective, predicting that sale of the pipeline will recoup taxpayer investment.
https://www.theglobeandmail.com/business/commentary/article-trans-mount…
Didn't the government guarantee all $31.8bn? Plus interest?
If they'd just cut their losses back before the second tranche of funding, they'd likely have had at least a lot of pipe they could sell as scrap metal.
The Big Rush to buy the thing in the first place was simply that the Kinder Morgan shareholders were not happy; there was speculation that the CEO's job was on the line. He found JT just gullible enough to not only buy the existing pipeline, and to take over the construction contract ... but also to provide a nice top up of several millions for the CEO's dashing bravura account.
Shortly after that, Davit Huntley published his first report on the amount of oil actually going out of Burnaby: nowhere near the capacity of the existing pipeline, and requiring absolutely zero new storage capacity or berth space for transport ships.
Somewhere fairly early along the line, Robyn Allen told us all why it was even more of a sow's ear, with all the finagling Kinder Morgan did and got away with: including taking the money it had been required to "post" ... and running, leaving Canadian taxpayers on the hook for the whole kablong.
I.e., in terms of "$3.1 bn and counting" ... the figure people need to understand is $31.8bn and counting.