Despite its $23 billion in debt, Trans Mountain wants to borrow more

Documents from Trans Mountain and other federal government departments indicate that as of March 2023, the expansion project was approximately 80% complete.

However, the summary of the company’s 2023-2027 plan (A new window) From the Canadian Investment Development Corporation (CDEV) reveals that Trans Mountain heavily indebted But it expects approximately 890,000 barrels of oil per day to flow through the expanded pipeline to generate enough profit to pay off the debt.

In its annual report for the year 2022 (A new window)CDEV qualifies Trans Mountain Loans as financial risks It is low for loans from the federal government but it increases when it comes to private lenders.

risk of falling into debt

By December 2022, Trans Mountain Corporation (TMC), which operates the expansion project, had secured at least $10 billion from major Canadian banks through a guarantee from Ottawa, plus money borrowed from the federal government, and is still Need a little billion dollars to complete the work.

CDEV says that’s where the problem lies Nothing is guaranteed That Trans Mountain will be able to obtain private financing. Along with Ottawa’s refusal to invest more public money in this project is uncertainty about the ability to borrow It casts doubt on TMC’s ability to continue in business.

If Trans Mountain can no longer borrow, CTM warns build the [projet d’agrandissement du réseau de Trans Mountain] Termination of employment, termination of workers, termination of contractors and date of assignment shall be completed […] delay.

Still, TMC promises EBITDA of $2.4 billion in the expanded pipeline’s first year of operation. The company hopes to be able to start paying off its debt.

The Trans Mountain Pipeline carries petroleum products from Alberta to an offshore terminal in Burnaby, British Columbia.

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Photo: Radio Canada

Cost explosion

Between labor and material costs, environmental requirements, and engineering issues posed by British Columbia’s topography, costs for the expansion project have skyrocketed.

When the pipeline was purchased from Kinder Morgan for $4.5 billion in 2018, the cost of the expansion project was estimated at $7.4 billion. In February 2020, the estimated cost rose to $12.6 billion before reaching $21.4 billion in 2022. So far, the total projected bill is closer to $30.9 billion.

About 80% of cost overruns cannot be passed on to customers in the form of pipeline fee increases because those fees are protected by their contracts with Trans Mountain.

sell at a loss?

Since purchasing the pipeline in order to complete the expansion work, the federal government has confirmed that it is only a temporary owner of the structure. However, Trans Mountain’s business plan does not call for a short-term sale.

Even if the pipeline were put up for sale, Brompton Funds chief investment officer Laura Lau doubts Ottawa will be able to recover nearly $35 billion sunk in the pipeline.

I think we have to be prepared to see it sold at a lossas you say.

Same story with economist Robin Allan who, in a report (A new window) (English) Prepared for a group of environmental lawyers in Vancouver, he notes that in order to be able to sell Trans Mountain, Ottawa will have to pay off liabilities. It smells like debt forgivenessI wrote.

Meanwhile, although it does not intend to invest more capital in the project, the federal government must still pay interest on the public debt and remain responsible for the $10 billion borrowed from banks to obtain a federal guarantee.

Originally scheduled for 2022, the triple-capacity pipeline will not be commissioned before the first quarter of 2024.

With information from David Thorton