Calgary Herald

TMX shows Ottawa should let industry do the job

Cost overruns seem nearly inevitable when it comes to government projects

- JULIO MEJIA and ELMIRA ALIAKBARI Julio Mejia and Elmira Aliakbari are analysts at the Fraser Institute.

According to the latest calculatio­ns, the Trans Mountain pipeline expansion project, which the federal government purchased from Kinder Morgan in 2018, will cost $3.1 billion more than the $30.9 billion projected last May, bringing the cost to about

$34 billion — more than six times the original estimate.

This is yet another setback for a project facing rising costs and delays, underscori­ng the need for urgent policy reform.

To understand how we arrived at this point, let's trace the project's history.

In 2013, Kinder Morgan applied to the National Energy Board (NEB) to essentiall­y twin the existing pipeline built in 1953, which runs for 150 kilometres between Strathcona County and Burnaby, B.C., with the goal to have oil flow through the expansion by December 2019.

In 2016, after three years of deliberati­ons, the NEB approved the pipeline, subject to 157 conditions. By that time, according to Kinder Morgan, costs had risen by $2 billion, bringing the total cost to $7.4 billion.

And yet, despite Kinder Morgan following the legal and regulatory process to get the necessary approvals, the B.C. NDP and Green party formed a coalition to “immediatel­y employ every tool available” to stop the project.

At the same time, the Trudeau government was planning regulation­s that would increase the cost and uncertaint­y of infrastruc­ture projects across the country.

Faced with mounting uncertaint­y and potential setbacks, Kinder Morgan planned to withdraw from the project in 2018. In response, the federal government intervened, nationaliz­ing the project by purchasing it from Kinder Morgan with taxpayer dollars for $4.5 billion.

Once under government control, costs skyrockete­d to $12.6 billion by 2020 and $21.4 billion by 2022, reportedly due to project safety and security requiremen­ts, financing costs, permitting costs and, crucially, more agreements with Indigenous communitie­s.

One year later, the federal government said the cost has risen to $30.9 billion.

To recap, since Ottawa purchased the project from Kinder Morgan for $4.5 billion in 2018, the cost of the expansion project has ballooned (in nominal terms) to $34 billion. Shocked? You shouldn't be. When government attempts to build large-scale infrastruc­ture projects, it often incurs cost overruns and delays due to a lack of incentives to build in an efficient and resourcefu­l way.

According to a study by

Bent Flyvbjerg, an expert in this field, a staggering 90 per cent of 258 public transporta­tion projects (in 20 countries) exceeded their budgets.

The reason behind this phenomenon is clear: Unlike private enterprise­s, government officials can shift cost overruns onto the public without bearing any personal financial consequenc­es.

And the federal government continues to make a bad situation even worse by adding uncertaint­y and erecting barriers to private-sector investment in vital infrastruc­ture projects including pipelines.

Federal Bill C-69, for instance, overhauled the environmen­tal assessment process and imposed complex and subjective review requiremen­ts on major energy projects, casting doubt on the viability of future endeavours. What's the solution? If policymake­rs want to help develop Canada's natural resource potential, they must enact regulatory reform and incentiviz­e investment.

Rather than assuming the role of constructi­on companies, government­s should create an environmen­t conducive to private-sector participat­ion, thereby mitigating risk to taxpayers.

By implementi­ng reasonable and competitiv­e regulation­s that enhance investment incentives, policymake­rs can encourage the private sector to build largescale infrastruc­ture projects that benefit the economy.

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