Feds paid ‘sticker price’ for Trans Mountain: budget regulator
The government paid “sticker price” for the stalled Trans Mountain pipeline, but an increase in construction costs or continued delays could drive down the final sale price it can fetch for the project, says a report by the budget watchdog.
“If it was a car, we’d say they paid sticker price,” Parliamentary Budget Officer Yves Giroux told reporters Thursday, adding that if construction delays persist, “then it’s quite clear to us that the government will have overpaid.”
The feds paid $4.4 billion last August when it took over the pipeline from Houston-based Kinder Morgan Inc., which had threatened to walk away from the project because of objections from environmental groups and some First Nations. The PBO estimates the project’s true value to be in the $3.6 billion and $4.6 billion range.
“As such, the Government negotiated a purchase price at the higher end of PBO’s valuation range,” according to the report.
The report found that a one-year delay in the completion of Trans Mountain, along with a 10-per-cent rise in construction costs, would reduce the “net present value” of the project by $1.5 billion. A three-year delay, pushing the completion date to 2023, would result in a negative $187 million value. Kinder Morgan was expecting to complete the project by December 2020.
Net present value is measured almost exclusively on present and future cash flows, but the government could still secure as much as $2.8 billion if it were to sell Trans Mountain in its current state, the PBO said Thursday.
The feds have said that it does not intend to hold the Trans Mountain assets indefinitely, and is accepting bids from prospective buyers.
The study brings into sharp focus just how costly construction delays could be for the pipeline.
The project eventually could still be a major cash cow for the feds. The PBO estimates it could generate around $1 billion per year in unlevered free cash flows from 2020 all the way to 2040, assuming construction delays do not persist.