B.C.’s ‘whopping’ capital project list remains a bit of a whopper
Forecast: Inventory of projects inflated by LNG and others that likely won’t proceed, business council warns
While the B.C. Liberals regularly trumpet the billions of dollars’ worth of major projects on the drawing board in the province, a more down-to-earth perspective was provided by a recent report from the B.C. Business Council.
The analysis, to be sure, started on a positive note. “The value of all major capital projects that are planned or underway in B.C. sits at a whopping $344 billion,” wrote the council’s chief policy officer Jock Finlayson and chief economist Ken Peacock. “This is up from $200 billion just three years ago.”
But the duo from the business council were not long in explaining why those numbers — taken from the inventory of major capital projects released periodically by the provincial jobs ministry — were not as whopping as they looked.
“Some caution is warranted,” they wrote in the policy newsletter, released in November. “Digging into the details and reviewing the factors behind some of the biggest proposed projects suggest that the inventory is inflated by a number of projects that ultimately may not proceed.”
In particular, they underscored “a surge in the number and value of proposed/ planned projects, many of which are still quite speculative.”
Heading the list of speculative undertakings were some 19 proposals for liquefied natural gas projects, which together accounted for almost half of the value of the additions to the inventory since 2011.
“While we are optimistic that an LNG industry will be established in the province, it is likely to include only a fraction of the 19 LNG projects listed in the inventory,” wrote Finlayson and Peacock.
A second area of concern cited in the business council analysis involved the mining sector. At first glance, the sector looks like one of the bright spots, there being 64 miningrelated projects with a value “in the vicinity of $40 billion” listed in the government inventory.
Digging deeper, as the authors promised to do, they found about the same number of mining projects in the inventory three years ago. Only eight in the current inventory were new, offset by 10 others that were declared dormant and dropped off the list in the interim.
Over the three years covered by the business council analysis, only the Red Chris copper/ gold mine in the northwest and the Roman coal project in the northeast have progressed to the construction phase — and the latter project is now on hold. Four other projects listed as under construction in the inventory are actually expansions or upgrades to existing facilities and operations rather than new mines.
“Reviewing the evolution of the inventory over the past few years supports the view that it is difficult to develop major land-based greenfield projects in B.C. — and that it seems to be getting harder over time,” says the report, invoking the shorthand for projects started from scratch. “Converting mining projects from ‘proposed’ to ‘under construction’ remains a formidable challenge in British Columbia.”
The conversion problem would also apply to the major oil projects in the inventory, including the Enbridge and Kinder Morgan pipelines as well as the $27-billion proposal to build a refinery near Kitimat.
One of the most discouraging findings in the report involves the manufacturing sector, which supplied only a dozen or so projects to the inventory, half under construction, the rest either proposed or on hold.
By far the largest project in the inventory from the manufacturing sector was Rio Tinto’s almost $5-billion upgrade to the aluminum smelter at Kitimat.
And speaking of conversion problems, one has to note that it took many years to bring the project to fruition.
“The paucity of significant investment projects in the broad manufacturing sector is a concern,” wrote Finlayson and Peacock. “Altogether, planned capital projects related to manufacturing presently add up to just $1.6 billion. This figure includes a $1.3-billion facility to process raw ore to magnesium that is reportedly on hold at this point. Without that project, planned major investment in manufacturing would amount to a measly $345 million.”
Measly. The authors didn’t use many adjectives in their report, but that one jumped out at me along with the aforementioned “speculative.”
Turning to the bright spots in the inventory, the analysis points to two sectors in particular. About 500 of the more than 900 projects in the inventory are residential developments in whole or in part, including multi-family projects and mixed officeretail-commercial projects.
Not to make light of such mainstays of job creation and investment dollars, but residential, retail and office construction doesn’t deliver the same heft to the economy as resource development or manufacturing.
While the government can be faulted for overselling its success in attracting actual capital projects (as opposed to hypothetical ones), it can’t be accused of not doing its part to directly build up the inventory.
For as the business council noted, the “under construction” side of the ledger includes billions of dollars worth of publicly funded port infrastructure, power projects, roads, bridges, hospitals, schools and the Evergreen rapid transit line.
Private projects get held up by everything from commodity prices to regulatory challenges to market uncertainties to jittery boards of directors. Those approved at the cabinet table are more likely to go ahead. Without the commitment of billions of tax dollars, the Liberals’ major project inventory would be much less weighty.