Feds defend late-day loan to Trans Mountain pipeline as a good deal for Canada
Finance and Intergovernmental Affairs Minister Dominic LeBlanc. Photo by Alex Tétreault
The federal government is defending its decision to loan Trans Mountain $20 billion, saying the cash will be used to pay down existing third-party debt and improve the pipeline project’s financial viability.
As first reported by Canada’s National Observer, one of the last things Chrystia Freeland did as finance minister before her abrupt resignation, was to authorize an additional $20-billion loan backing the Trans Mountain pipeline project, bringing the total disclosed federal commitment to nearly $50 billion.
A Finance Canada official said now that the pipeline is complete and in operation, the government wants to pay down the debt incurred since 2022. By replacing commercial lending with government money, they are lowering Trans Mountain’s interest payments, the official said.
“Government financing will reduce financing costs by approximately $3.5 billion over six years,” they added. “These funds will be dedicated to paying down construction costs faster, increasing the value of the pipeline.”
Trans Mountain is indebted to banks to the tune of $18 billion, so the new federal loan will be used to pay that debt off, said Eugene Kung, a staff lawyer with West Coast Environmental Law.
Because the bank loans come with interest, the federal government is putting more public dollars on the line to help Trans Mountain pay its debt faster to avoid higher interest payments. In effect, it’s a subsidy because the government is offering below-market rates.
The latest loan appears to violate a commitment made by Freeland in 2022 that no further public money would be invested in the project after the pipeline’s cost swelled to $21.4 billion.
“I want to assure Canadians there will be no additional public funding for TMC (Trans Mountain Corporation)," Freeland told reporters at the time.
However, when the company needed more money, the federal government offered banks loan guarantees that would see the public repay the banks if Trans Mountain couldn’t. It was a strategy to infuse the Crown corporation with more cash, without directly putting it on the government’s tab.
The latest financing, described as “repayment of higher-cost TMC debt/working capital support,” was disclosed on Export Development Canada’s website on January 30, but is dated Dec. 13, 2024 — the Friday before Freeland announced her resignation on Monday, Dec. 16.
Trans Mountain Corporation and Freeland did not return requests for comment.
Boosting oil and gas exports to the United States is part of Canada’s strategy to appease American officials. There have been calls from premiers to expand Canada’s oil pipeline network, even to Eastern Canada, as a way to find new customers for the oilpatch.
However, that’s far from a guaranteed strategy. The International Energy Agency expects global oil demand to peak within the next 10 years, while North American oil demand may have already peaked and is now in decline, suggesting that even if Canada were to double down on fossil fuel production, there would be a shrinking pool of customers to support that growth.
Kung told Canada’s National Observer the federal government's 2022 promise to not put any more public dollars into the beleaguered project has clearly been broken.
“$20 billion is a pretty big breaking of that promise,” he said.
Since 2018, the total disclosed loans and loan guarantees to Trans Mountain from the federal government range between $49.5 and $53 billion.
As previously reported by Canada’s National Observer, Finance Canada quietly helped co-ordinate multibillion-dollar loans in April 2022 by guaranteeing the government would pick up the tab should anything go wrong. Critics have long argued that Trans Mountain won’t be able to pay back its massive debt, forcing taxpayers to ultimately swallow it.
The banks behind the lending include RBC, Scotiabank, TD, BMO, CIBC, National Bank, ATB Financial, and Goldman Sachs Canada, according to financial data reviewed by Canada’s National Observer.
That tranche marked Goldman Sachs' first time lending to the project, while the other seven banks have participated in previous loans.
Most of the banks did not return a request for comment Friday. ATB Financial declined to comment.
Toll battle
The Canada Energy Regulator is currently holding hearings into changing the toll structure on the pipeline to charge oil companies using it more money. Higher tolls could theoretically recover construction cost over-runs, but at the same time, might weaken the business case for companies planning to export oil overseas by eating into their profit margins.
“What we know just from Trans Mountain's own evidence, and there's a mountain of it filed, is that there's no scenario in which Trans Mountain recovers the cost of construction,” Kung said. “What they've put forward is what I would describe as a best case and optimistic scenario… and even in that scenario they are only recovering less than half the cost of construction.”
Kung said it would be a dangerous precedent for the Canada Energy Regulator to approve new pipeline tolls that only recover about half the costs of construction.
A report on the pipeline project’s financial viability filed with the regulator last week found the project’s revenue shortfall is about $20 billion. The report, written by economist Robyn Allan for the Tsleil-Waututh Nation, said the Crown corporation’s proposed tolls do not satisfy the “fair return standard” that would support the company becoming financially independent and attracting capital.
“When shippers pay tolls that do not cover the cost of the service, this represents a subsidy,” Allan wrote. “When the shortfall is borne by the public purse, this represents a public subsidy.”
The federal government has pledged to phase out fossil fuel subsidies, but many persist.
In mid-January, the International Institute for Sustainable Development (IISD) said that while Canada has made some progress reducing its fossil fuel subsidies, major gaps remain. The IISD noted the federal government committed to publishing an inventory of its fossil fuel subsidies, both direct and indirect, by December, but failed to do so.
John Woodside / Local Journalism Initiative / Canada’s National Observer
February 3rd 2025
Senior Ottawa Reporter
Comments
Oil and Gas is doing this to us and the world. No more breaks for them. No more because it is never ending. They only take and never give.
The timing for the completion of the Trans-Mountain Pipeline could not have been better. In light of the election of Donald Trump and his tariff threats, Canada needs alternative customers for its oil. The pipeline allows access to Asian markets where the capacity exists to refine heavy crude thus giving Canada a badly needed tool with which to fight back against Trump's tariffs.
Do Asian markets in fact have the capacity to refine heavy crude?
And even if so, for how much longer will they be interested? China's car sales are gonna be more than half electric this year; they, too, may have reached peak oil demand last year and be about to start dropping. As they finish electrifying they're going to be exporting all their electric stuff, and Asians aren't going to be following the US into a trade war with China. To turn a profit, this pipeline would have had to run for AT LEAST 40 YEARS, and that's before most of the cost overruns. Asian markets aren't going to be interested for anything like 40 years; I don't know if they're interested NOW.